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Author: 


Culbertson,  William  Smith 


Title: 


Commercial  policy  in  war 
time  and  after 

Place: 

New  York 

Date: 

1919 


9^'^2D5fl'l 


MASTER    NEGATIVE    # 


COLUMBIA  UNIVERSITY  LIBRARIES 
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Culbertson,  William  Smith,  1884- 

...  Coniincrrinl  policy  in  war  tiino  and  nftor;  n  study  of  flio, 
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relations,  by  "William  Smith  Culbertson  ...  with  an  introduc- 
tion by  Henry  C.  Emery  ...  New  York,  London,  D.  Appleton 
and  company,  1019. 

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1 


PROBLEMS  OF  WAR  AND  OF  RECONSTRUCTION 

EDITED  BY 
FRANCIS  G.  WICK  WARE 


COMMERCIAL    POLICY 

IN  WAR  TIME  AND   AFTER 


ij^cnool  of  b'uslnoss  Ifbrar/ 
PROBLEMS  OF  WAR   AND   OF   RECONSTRUctlbl^  — ^^^  H"^!^!!J:J .:^ 

COMMERCIAL  POLICY 

IN  WAR  TIME  AND  AFTER 

A    STUDY    OF    THE    APPLICATION    OF    DEMOCRATIC 
IDEAS  TO  INTERNATIONAL  COMMERCIAL  RELATIONS 


BY 


^ 


WILLIAM  SMITH  CULBERTSON 

MEMBER    OF    THE    UKITED    STATES    TAKIFF    COMMISSION 


WITH  AN  INTRODUCTION  BY 

HENRY  C.  EMERY 

SOMETIME    CHAIRMAN    OF  THE    TARIFF   BOARD 


D.  APPLETON  AND  COMPANY 

NEW  YORK  LONDON 

1919.  , 


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COPYRIGHT,  1919,  BY 

D.  APPLETON  AND  COMPANY 


TO 
MY  WIFE 


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PREFACE 

My  aim  in  writing  this  book  has  not  been  to  consider 
the  temporary  changes  in  industry  and  trade  resulting 
from  the  war,  nor  primarily  the  problems  of  the  im- 
mediate future,  such  as  feeding  starving  peoples  and 
restoring  devastated  areas.  Although  fully  conscious 
of  the  importance  of  these  questions,  I  have  sought 
rather  in  the  following  pages  to  emphasize  the  perma- 
nent changes  caused  by  the  war  and  to  discuss  questions 
which  for  many  years  will  rise  for  decision  before  the 
peoples  of  the  world. 

In  this  book  I  have  considered  only  those  aspects  of 
the  work  of  reconstruction  that  have  to  do  with  com- 
mercial policy  in  war  time  and  after.  In  Part  I  are 
reviewed  the  diversifying  and  modify ing  influences  of  the 
war  on  American  and  foreign  industrial  conditions.  In 
Part  II  are  discussed  our  national  commercial  prob- 
lems—  the  tariff,  anti-dumping  legislation,  methods  for 
preventing  discriminations  against  our  national  inter- 
ests, and  methods  for  promoting,  controlling,  and  de- 
mocratizing American  commercial  activities  abroad. 
Finally,  Part  III  deals  with  world  affairs  and  surveys 
unfair  trade  practices  between  nations  and  their  regu- 
lation, the  permanent  lessons  of  the  war  in  the  control  of 
the  production  and  distribution  of  food  and  raw  ma- 
terials, reciprocity  treaties,  preferential  tariff  arrange- 
ments, the  policy  of  the  *^open  door,''  colonies,  foreign 
investments  and  concessions,  and  the  League  of  Nations. 

The  proposals  in  Part  III  for  a  series  of  international 
commissions  under  the  League  of  Nations  as  a  step 
toward  international  government  is  an  extension  of  the 
views  contained  in  my  article  published  in  the  Quarterly 
Journal  of  Economics,  August,  1918,  entitled,  ''Inter- 

vu 


PREFACE 

national  Tariff  Relations  as  Affected  by  the  War/'  which 
was  amplified  in  my  address  on  **  The  Open  Door  and 
Colonial  Policy"  before  the  American  Economic  Asso- 
ciation at  Richmond,  Virginia,  December  28,  1918.  The 
substance  of  both  the  article  and  the  address  is  incor- 
porated in  this  book  through  the  courtesy  of  the  editor 
of  the  Journal  and  the  president  of  the  Association. 
Portions  also  of  my  article  in  the  Century  Magazine  for 
November,  1918,  entitled,  ''Commercial  Policy  and  the 
War,''  are  used  in  this  book  with  the  permission  of  the 
editor,  and  the  editor  of  the  American  Economic  Review 
has  kindly  permitted  me  to  reprint  in  an  appendix  my 
article  on  ''The  Tariff  Board  and  Wool  Legislation,'' 
published  in  March,  1913.  In  some  portions  of  this  book 
I  have  used  freely  information  contained  in  reports  of 
the  United  States  Tariff  Commission  and  have  not 
deemed  it  necessary  in  every  case  to  give  detailed  refer- 
ences. I  wish  here  to  make  general  acknowledgment  of 
my  indebtedness  to  these  sources. 

The  views  I  express  in  this  book  are  personal.  They 
are  not,  it  need  hardly  be  said,  to  be  attributed  to  the 
United  States  Tariff  Commission  of  which  I  am  a  mem- 
ber because  of  their  publication  by  me.  I  take  full  and 
sole  responsibility  for  all  statements  of  fact  and  expres- 
sions of  opinion. 

W.  S.  CULBERTSON. 

Emporia,  Kansas. 

Postscript : 

A  summary  of  the  treaty  of  peace  is  given  out  as  this  book 
comes  off  the  press.  To  what  extent  this  book  is  in  harmony 
with  the  principles  embodied  in  the  treaty,  to  what  extent  the 
treaty  establishes  a  basis  for  a  liberal  international  policy  such 
as  this  book  argues  for  and  such  as  the  League  of  Nations 
Covenant  gave  the  peoples  the  right  to  expect,  must,  at  this 
late  date,  be  left  to  the  reader  to  judge. 

w.  s.  c. 


CONTENTS 


PREFACE 
INTRODUCTION 


vii 


xvu 


PART  I 

wab's  effect  on  industry 


CHAPTER  I 

RELATION    OF    COMMERCIAL    POLICY    TO    RECONSTRUC- 
TION 

Facing  the  problems  of  reconstruction  —  Their  nature  and 
variety  —  Commercial  policy  as  a  reconstruction  prob- 
lem—  Concepts  of  international  commerce  before  the 
war  —  The  permanent  value  of  nationalism  —  Danger 
from  the  spirit  of  Prussianism  —  Bolshevism  —  The 
optimistic  fatalist  —  Democracy  and  a  constructive 
programme  necessary  —  America's  part  in  the  world 
settlement  —  A  new  social  point  of  view  —  Three  stages 
of  the  industrial  revolution  —  The  partnership  between 
government  and  industry 


CHAPTER  II 

EFFECT    OF    THE    WAR    IN    DIVERSIFYING    AMERICAN 

INDUSTRY 

America's  industrial  position  in  1914  —  Diversifying  in- 
fluences set  in  motion  by  the  war  —  New  glass  products, 
including  laboratory  and  optical  glass  —  Surgical  in- 
struments—  Sueded  gloves  —  Venetians  —  Camphor     . 


20 


CHAPTER  III 

THE  CHEMICAL  INDUSTRIES  I  I,  UNDER  BLOCKADE  AND 

EMBARGO 

Curtailment  of  imports  of  chemical  products  from  Central 
Europe  —  The  situation  in  the  dye  industry  in  1914  — 

iz 


CONTENTS 


Effect  of  the  shortage  of  dyes  on  American  textile 
mills  —  Growth  of  the  American  dye  industry  —  Tariff 
on  intermediates  and  dyes  —  Effect  of  America's  en- 
trance into  the  war  in  April,  1917,  on  the  dye  industry 

—  Germany's  natural  advantage  in  potash  —  Growth 
and  nature  of  the  American  potash  industry  —  Potash 
beds  in  Alsace  —  Germany 's  pre-war  control  of  thorium 
nitrate  —  Its  production  in  the  United  States  —  Un- 
desirability  of  dependence  upon  one  nation  for  sup- 
plies of  essentials      .......         33 

CHAPTER  IV 

THE     CHEMICAL     INDUSTRIES:     II,     UNDER    THE    WAE 

DEMAND 

Demand  for  war  supplies  a  second  major  influence  modify- 
ing the  chemical  industries  —  Chlorine  in  the  manu- 
facture of  poisonous  gas  —  Effect  of  stimulating  its 
production  —  Caustic  soda  and  soda  ash  —  Sulphuric 
acid  —  Sulphur  resources  of  United  States  —  The  war 
and  Chile's  monopoly  of  nitrate  of  soda  —  Nitric  acid 
from  synthetic  ammonia  —  Smokeless  powder  —  T. 
N.  T.  —  Picric  acid  —  Relationship  between  erplo- 
sives  and  dye  industry  —  Varnishing  airplane  wings  — 
War  uses  of  acetone  —  Antimony  —  Quicksilver  —  Im- 
portance of  chemical  industries  ....         49 

CHAPTER  V 

AMERICAN  INDUSTRIAL  EXPANSION  IN  THE  WAKE  OF 

WAR 

Effect  of  the  war  on  established  industries  of  the  United 
States  —  Period  from  August,  1914,  to  April,  1917  — 
Period  from  our  entrance  into  the  war  to  the  signing 
of  the  armistice  —  American  textile  industries  —  In- 
crease in  financial  strength  —  Growth  of  export  trade 

—  War  orders  —  American  steel  industry  —  Export  ex- 
pansion —  Increase  in  mill  capacity  —  Unprecedented 
growth  of  American  shipbuilding  —  Its  commercial  and 
political  significance  ......         62 

CHAPTER  VI 

EFFECT  OF  THE  WAR  ON   INDUSTRY  ABROAD 

Industrial  effect  of  the  devastation  of  Belgium  and  France 
German     chemical     and     textile     industries     as     illus- 


CONTENTS 


trating  the  war  *s  effect  on  Germany 's  industrial  life  — 
War  demand  in  Great  Britain  and  her  textile  and  steel 
industries  —  Problems  of  her  export  markets  —  Japan 's 
industrial  expansion  during  the  war  —  Her  steel  in- 
dustry—  Her  shipbuilding  —  Her  cotton  industry  — 
Increased  effectiveness  of  Japanese  competition  and  its 
extent  —  European  competition  —  Scientific  research, 
business  organization,  and  labor       .... 

PART  II 

AMERICAN   COMMERCIAL  POLICIES 


80 


CHAPTER  VII 

EQUALIZING  CONDITIONS   OF   COMPETITION 

Equalizing  conditions  of  competition  as  a  factor  in  tariff 
policy  —  < '  Infant  industry  * '  argument  —  Argument 
for  protection  from  military  necessity  —  Doctrine  of 
free  trade  —  Diversification  of  industry  and  population 
and  developing  the  nation 's  productive  powers  —  Meas- 
uring competitive  conditions  —  Monetary  expenses  of 
production  vs.  costs  in  the  sense  of  sacrifice  —  What 
monetary  costs  include  —  Materials  and  resources  — 
Wages  vs.  labor  cost  per  unit  of  product  —  Overhead 
expenses  —  Interest  —  Theoretical  accuracy  in  cost  ac- 
counting not  necessary  for  tariff  purposes  —  Monetary 
costs  of  producing  sugar  in  the  United  States  and 
Cuba  —  Costs  of  cotton  yarns  in  the  United  States  and 
England  —  Costs  of  woolen  fabrics  in  the  United  States 
and  England  —  Domestic  costs  compared  with  foreign 
prices  —  Value  of  domestic  conversion  costs  alone  — 
Labor  standards  and  the  tariff  —  The  consumer  —  The 
United  States  Tariff  Commission  —  Taking  the  tariff 
out  of  politics 

CHAPTER  VIII 

ANTI-DUMPING  LEGISLATION 

What   dumping  is  not  —  Competition  with  cheap   foreign 
goods  —  Undervaluation  —  Specific     vs.     ad     valorem 

duties  —  Countervailing  duties  —  Types  of  dumping 

Sporadic  selling  abroad  below  price  at  home  —  Dump- 
ing as  a  permanent  policy  —  Dumping  as  predatory 
price  cutting  —  Effect  of  dumping  on  American  in- 
dustries —  Post-war  possibilities  —  Canadian   dumping 


103 


CONTENTS 

law  —  Australian  method  of  handling  unfair  competi- 
tion —  American  dumping  legislation  of  1916  —  Pro- 
posed revisions  .  .  .  .  .  .  .137 

CHAPTER  IX 

EXPORT   TRADE    AND   ITS    PROMOTION 

Nature  of  international  trade  —  Necessity  and  desirability 
of  export  business  —  Expert  methods  in  foreign  coun- 
tries before  the  war  —  Great  Britain  —  Germany  — 
Post-war  plans  for  promoting  trade  —  Great  Britain  — 
France  —  Germany  —  Japan  —  Canada  —  Growth  of 
American  export  trade  during  the  war  —  In  quantity, 
destination,  and  variety  —  Cooperative  associations  to 
promote  American  export  trade  —  Export  Associations 
Act  —  Objections  to  export  associations  —  Activities  of 
non-governmental  bodies  in  promoting  export  trade  — 
Promotion  of  export  trade  by  the  United  States  Govern- 
ment—  Free  ports  —  As  there  are  ways  in  which  ex- 
port trade  should  not  be  promoted,  there  are  also  ways 
in  which  it  should  be         .....         .       156 

CHAPTER  X 

BARGAINING    TARIFFS    TO    PREVENT    DISCRIMINATIONS 

Tariff  discriminations  classified  —  Those  based  on  policy  — 
Concealed  discriminations  —  Open  discriminations  — 
Necessity  of  bargaining  provisions  in  a  nation's  tariff 
laws  —  Penalty  duties  —  Section  2  of  the  Tariff  Act 
of  1909  —  Its  defects  —  Commercial  treaty  provision 
of  the  Tariff  Act  of  1913  —  A  proposal  for  penalty 
duties  —  General  and  conventional  tariff  system  of  Grer- 
many  —  Maximum  and  minimum  tariff  system  of 
France  —  Most-favored-nation  clause  in  commercial 
treaties  —  The  American  or  conditional  form  and  in- 
terpretation of  this  clause  —  Opinions  of  Federal  courts 
and  the  Department  of  State  —  The  European  or  un- 
conditional form  and  interpretation  of  the  most- 
favored-nation  clause  —  The  spirit  in  which  a  flexible 
tariff  should  be  enacted  —  The  principle  of  equality  of 
treatment  ........       180 

« 

CHAPTER  XI 

NATIONAL    CONTROL    OF   AMERICAN    COMMERCIAL 
ACTIVITIES  ABROAD 

Undemocratic  tendencies  in  national  commercial  policy  — 
Types  of  American  commercial  activity  abroad  —  Ex- 

zii 


CONTENTS 

port  of  food  and  raw  materials  —  Export  of  manu- 
factured goods  —  American  factories  abroad  —  Ameri- 
can capital  to  develop  foreign  resources  —  Loans  of 
American  capitalists  to  foreign  Governments  —  Need 
for  regulation  —  Types  of  complications  which  may 
arise  —  Neither  imperialism  nor  laissez  faire  is  a  proper 
policy  —  Precedents  for  regulation  and  control  —  Need 
for  more  comprehensive  control  that  will  remove  causes 
of  international  friction  —  Limitations  of  national 
regulation  —  First  step  toward  a  democratic  world 
league  is  democratic  life  in  individual  nations    . 

PART  III 

WORLD  COMMERCIAL  POLICIEB 


CHAPTER  XII 

WHERE  NATIONAL  CONTROL  BREAKS  DOWN 

Where  international  control  begins  —  Anarchy  in  inter- 
national trade  —  How  foreign  trade  should  not  be  pro- 
moted—  Bounties  —  Imitating  trade-marks  and  de- 
signs —  Depression  of  prices  —  Espionage  —  Tying 
contracts  —  Predatory  price  cutting  —  Discriminations 
in  transportation  —  Efforts  of  nations  to  correct  evils 
—  How  nations  handle  unfair  practices  within  their 
jurisdiction  —  In  the  United  States —  The  courts  — 
Federal  ^  Trade  Commission  —  Interstate  Commerce 
Commission  —  Attempts  to  control  unfair  competition 
by  international  action  —  Brussels  Sugar  Convention  — 
International  agreements  concerning  industrial  prop- 
erty and  unfair  competition  —  International  trade  and 
commerce  commissions  —  The  penalty  for  refusal  to 
act 


CHAPTER  XIII 

AFTERMATH    OF    WAR-TIME    CONTROL    OF    FOOD    AND 

RAW  MATERIALS 

Pood  and  raw  materials  as  factors  before  the  war  in  com- 
mercial policy  —  Foods  —  Significance  of  essential  raw 
materials  —  Position  of  Germany  with  reference  to  raw 
materials  — Of  Japan  — Of  the  British  Empire  — Of 
the  United  States  —  War-time  control  of  food  and 
raw  materials  by  individual  nations  —  In  the  United 
States  —  Food  and  Fuel  Administrations  —  War  Trade 

•  •  • 

xin 


201 


221 


CONTENTS 

Board  —  War  Industries  Board  —  Shipping  Control 
Committee  —  Examples  of  national  control  —  Drift 
toward  international  control  —  Commission  Inter- 
nationale de  Ravitaillement  —  AUied  Maritime  Trans- 
port Council  —  Inter-Allied  Food  Council  —  Inter- 
Allied  Munitions  Council  —  Inter-Allied  Programme 
Committees  on  Eaw  Materials  —  Permanent  effect 
of  war-time  experiences  —  Dangers  from  absence  of  in- 
ternational regulation  —  Possibilities  of  trade  warfare 
suggested  hj  war  experiences  and  plans  —  Necessity  for 
joint  action  among  nations         .....       241 

CHAPTER  XIV 

INTERNATIONAL  TARIFF  POLICIES 

Heights  of  tariffs  primarily  for  domestic  determination  — 
How  far  they  may  be  the  subject  for  diplomatic  dis- 
cussion —  Trade  wars  —  Factors  determining  height  of 
tariffs  of  dependent  colonies  and  of  China  and  Siam  — 
Discriminations  and  preferences  more  obviously  and 
always  matters  of  international  concern  —  Trade  war 
between  Germany  and  Canada  —  American  reciprocity 
experiences  —  Preferences  within  the  British  Empire    .       263 

CHAPTER  XV 

THE  OPEN  DOOR  AND  COLONIAL  TARIFFS 

"Open  door"  defined  — The  ** closed  door'»  in  the  old 
colonial  system  —  Return  of  struggle  for  colonies  in 
the  nineteenth  century  —  Agreements  relating  to  the 
open  door  —  Berlin  Conference,  1884-5  —  Algeciras 
Conference,  1906  —  Open  door  in  China  —  Ingenious 
ways  of  closing  the  ''door"  —  Colonial  tariffs  — The 
Netherlands  —  British  dependent  colonies  —  Spain  — 
Germany  —  Italy  —  France  —  The  Philippines  —  Colo- 
nies should  not  be  instruments  of  commercial  policy      .       278 

CHAPTER  XVI 

PREFERENCES  —  AN   INTERNATIONAL  PROBLEM 

Economic  effect  of  tariff  preferences  —  Spirit  in  which  the 
problem  should  be  approached  —  TJndesirableness  of 
discriminatory  treaties  between  nations  —  Of  tariffs 
favoring  the  mother  country  in  dependent  colonies  — 
Of  British  preferential  tariffs  —  Necessity  for  inter- 
national agreement  —  Concealed  discriminations  —  Pos- 

3dv 


'P 


CONTENTS 

sible  grounds  for  exceptions  to  the  rule  of  equality  of 
treatment  —  An  International  Tariff  Commission  pro- 
posed—  Its  powers  and  duties    ......       296 


CHAPTER  XVII 

FOREIGN  INVESTMENT  AND  CONCESSIONS 

Foreign  investments  —  Of  Great  Britain  —  Of  France  —  Of 
Germany  —  Of  the  United  States  —  Use  of  foreign  in- 
vestments in  highly  developed  countries  —  Alien  Prop- 
erty Custodian  in  the  United  States  —  German  world- 
wide control  of  non-f err'ous  metals  —  German  finance  in 
Italy  —  Policy  to  be  pursued  —  The  alliance  between 
export  trade  and  foreign  investments  —  Methods  mak- 
ing it  effective  —  Need  for  international  regulation  — 
Political  significance  of  the  exploitation  of  unde- 
veloped regions  —  Exclusive  concessions  and  the  open 
door  —  The  Congo  —  The  British  in  the  Caribbea^n  — 
Conflicts  between  financial  interests  and  weak  Govern- 
ments—  British  in  Egypt  —  French  in  Morocco  — 
Haiti  and  Dominican  Republic  —  Italy  in  Tripoli  — 
The  Boer  War  —  Political  aims  and  finance  —  Russia 
in  Persia  —  The  Bagdad  Railway  —  Concessions  in 
China  —  Manchuria  —  The  Twenty-One  Demands  — 
China  in  the  world  politics  of  the  future  —  Necessity 
for  international  supervision  —  Failure  of  imperialism 
—  Of  the  laissez-faire  policy  —  Nature  of  international 
control 311 


CHAPTER  XVril 

TOWARD  WORLD  DEMOCRACY 

Place  of  national  governments  in  progress  in  the  immediate 
future  —  National  security,  both  military  and  economic 
— Political  democracy  often  associated  with  commercial 
and  financial  imperialism  —  Imperialistic  nations  can- 
not be  formed  into  a  successful  democratic  league — ^Re- 
sponsibilities of  democracies  to  undeveloped  regions  — 
Undesirable  sort  of  "league  of  nations'* — Holy  Al- 
liance —  Triple  Alliance  —  Triple  Entente  —  Mittel 
Europa — Paris  Economic  Conference — Shall  the  **next 
war"  be?  —  Arguments  for  a  democratic  league  of 
nations  —  Causes  of  war  —  What  the  Great  War  has 
taught  in  cooperation  —  Failure  of  unrestricted  com- 
petition—  Proposals  for  a  league  of  nations  —  Sover- 
eignty—  Covenant  of  the  league  of  nations  —  Interna- 

XV 


CONTENTS 

tional  commissions  —  Their  functions  and  relation  to 
the  League  —  The  need  of  vision 


APPENDICES 

I.    American  Manufacturing  Industries 

XL     Eecommendations   of  the   Economic   Conference   of 
the  Allies  ...... 

III.  Japan's  Demands  on  China,  January  18,  1915 

rV.  Act  Creating  the  United  States  Tariff  Commission 

V.  The  Tariff  Board  and  Wool  Legislation 

"VT.  Cotton  Conversion  Costs  and  Tariff  Rates 

VII.     Anti-Dumping     Legislation     in     Canada    and     the 
United  States  ..... 

VIII.    Export  Associations  Act        .... 

IX.    Covenant  of  the  League  of  Nations 

X.    Act  Creating  the  Federal  Trade  Commission 


338 


INDEX 


365 

368 
374 
378 
384 
422 

430 
434 
438 

463 


INTRODUCTION 

One  of  the  outstanding  facts  of  the  Great  War  so  far 
as  tiie  United  States  is  concerned  is  clearly  our  closer 
contact  with  the  problems  of  European  politics.  This 
is  not  merely  a  case  of  increased  interest  on  the  part  of 
the  American  people,  but  a  situation  into  which  we  have 
been  forced  by  the  fact  that  we  have  become  participants 
in  the  determination  of  European  policies  in  a  sense  little 
dreamed  of  a  few  years  ago. 

As  a  result  we  shall  be  obliged  to  look  at  many. of  our 
home  policies  from  a  broader  point  of  view  than  form- 
erly. This  is  particularly  true  of  the  tariff.  For  genera- 
tions the  tariff  problem  has  seemed  to  most  American 
statesmen  and  to  the  public  to  be  a  purely  domestic  one. 
We  adopted  tariffs  partly  to  raise  revenue  and  partly  to 
protect  American  industry.  In  any  case  we  opened  or 
closed  our  door  according  to  our  own  will  and  with  little 
regard  to  the  broader  questions  of  commercial  policy  the 
world  over.  The  tariff  was  simply  raised  or  lowered 
according  to  the  particular  financial  needs  of  the  moment 
or  according  to  the  economic  theory  of  the  party  in 
power  at  any  given  time.  Furthermore,  for  a  century 
all  consideration  of  the  tariff  was  based  on  the  assump- 
tion that  the  imports  into  this  country  would  be  largely 
manufactured  goods  and  our  exports  would  be  largely 
raw  materials.  The  question  was  merely  how  far  im- 
portation of  manufactured  goods  should  be  restricted 
with  the  object  of  stimulating  the  growth  of  manufacture 
at  home. 

Even  before  the  war  the  United  States  was  beginning 
to  assume  a  new  position  as  an  exporting  nation,  and 
today  the  situation  in  our  foreign  commerce  has  become 
nearly  reversed.     Manufacturers  are  no  longer  merely 

xvii 


INTRODUCTION 

asking  for  the  protection  of  the  home  market  in  their 
favor,  but  they  are  asking  the  assistance  and  encourage- 
ment of  the  Government  in  securing  markets  abroad. 

European  nations  have  for  generations  framed  their 
tariffs  with  a  view  to  improving  their  positions  in  foreign 
competition.  In  tariff  making  there  were  always  con- 
templated the  problems  of  commercial  treaties  based  on 
negotiation  between  different  countries.  Tariffs  have 
been  arranged  as  much  for  bargaining  purposes  as  for 
purposes  of  revenue  or  protection  to  the  home  producer. 
In  recent  years  American  students  of  the  tariff  have 
frequently  urged  this  as  a  desirable  policy  for  the 
United  States  to  follow,  but  to  most  business  men  such 
propositions  have  seemed  rather  impractical  and  far 
away.  Especially  in  Congress  has  there  been  an  extra- 
ordinary indifference  to  this  phase  of  the  tariff  ques- 
tion. With  this  indifference  has  gone  an  almost  com- 
plete ignorance  as  to  the  broader  aspects  of  the  tariff 
question  as  they  appear  in  European  discussions  and  as 
they  affected  European  tariff  policies. 

In  the  period  of  reconstruction  the  tariff  problem  will 
play  as  big  a  role  as  ever.  It  is  likely,  however,  that  it 
will  be  debated  along  quite  different  lines  from  those  so 
long  familiar.  Our  tariff  policy  from  now  on  should 
pay  as  much  attention  to  the  export  problem  as  it  form- 
erly paid  to  the  relation  of  imports  to  the  home  pro- 
ducer. In  the  matter  of  the  tariff,  as  in  many  other 
problems  formerly  considered  purely  domestic,  we  are 
bound  to  be  more  and  more  affected  by  the  general  inter- 
national situation.  The  indifference  and  ignorance  re- 
ferred to  above  will  prove  a  handicap  in  getting  the 
American  business  public,  and  the  politicians  as  well, 
familiar  with  the  practical  working  of  commercial  poli- 
cies in  this  broader  sense.  But  we  are  no  longer  con- 
fronted merely  with  the  desirability  or  undesirability  of 
a  protective  tariff.  We  must  equip  ourselves  to  under- 
stand the  nature  of  bargaining  tariffs,  maximum  and 

xviii 


INTRODUCTION 


minimum  tariffs,  commercial  treaties,  most-favored- 
nation  treatment,  anti-dumping  legislation,  and  many 
others  of  the  elements  of  commercial  policy.  Mr.  Cul- 
bertson's  broad  survey  of  this  whole  range  of  topics  is 
a  most  timely  introduction  to  a  field  with  which  we  are 
bound  to  become  more  and  more  familiar  whether  we 
like  it  or  not. 

Besides  the  fact  that  our  tariff  in  any  case  must  from 
now  on  be  treated  in  closer  relation  to  the  complex 
problems  of  international  trade,  there  is  the  further 
fact  that  it  assumes  a  new  aspect  in  the  light  of  its 
delation  to  the  efforts  that  are  being  made  to  bring  about 
some  form  of  international  agreement  for  the  preven- 
tion of  war  and  the  maintenance  of  just  r-elations 
between  the  nations.  The  conclusions  of  Mr.  Culbertson 
as  to  the  relation  of  our  commercial  policy  to  this 
broader  question  will  doubtless  call  out  strenuous  pro- 
test. They  are,  however,  worthy  of  very  serious  atten- 
tion. Furthermore,  any  thoughtful  man  before  reject- 
ing them  must  search  his  mind  and  see  whether  or  not 
others  of  his  convictions  of  a  more  general  political 
nature  do  not  force  him  to  accept  the  conclusions  of  this 
book  as  a  necessary  corollary  to  ideas  already  accepted 
by  him.  If  he  already  believes  firmly  in  the  desirability 
of  a  League  of  Nations,  it  will  be  hard  for  him,  after 
reading  this  book,  not  to  recognize  that  problems  of 
commercial  policy,  including  tariffs,  involve  the  neces- 
sity for  some  kind  of  an  international  tribunal.  If,  on 
the  other  hand,  the  reader  is  already  convinced  that  the 
idea  of  a  League  of  Nations  involves  nothing  but  com- 
plications and  dangers  to  be  avoided,  he  will  probably 
find  that  the  extension  of  the  concept  made  by  Mr.  Cul- 
bertson furnishes  him  with  new  reasons  for  dreading 
such  a  departure  from  established  policies. 

There  is,  however,  a  large  intermediate  group  who 
find  it  difficult  to  come  to  any  very  strong  conviction 
on  the  all-absorbing  question  of  the  day.    They  are  too 

zix 


INTRODUCTION 

hard-headed    to    believe    that    mankind    has   suddenly 
changed,  or  that  mere  preaching  regarding  the  harmony 
of  nations  will  alter  the  age-long  contest  for  prestige 
and  power.    They  see  clearly  the  new  complexities  and 
difficulties  that  must  inevitably  arise.    At  the  same  time 
they  are  too  profoundly  impressed  with  the  horrors  of 
the  last  four  years,  too  receptive  to  the  new  current  of 
ideas,    to   accept   the    fatalistic    conclusion    that   these 
national  rivalries  and  struggles  must  go  on  in  the  same 
old  way  in  saecula  saeculorxim.     To  this  large  group 
Mr.  Culbertson's  discussion  of  the  manifold  problems  of 
commercial  policy,  on  the  basis  of  supplementing  the  old 
purely  national  control  with  a  new  international  con- 
trol, will  appeal  in  diverse  ways.     Some  will  find  in  it 
a  practical  working  out  of  principles  in  detail  that  will 
make  the  League  idea  more  concrete  and  acceptable. 
Others  will  perhaps  become  more  fearful  in  realizing  the 
array  of  problems  that  are  to  be  faced  and  the  number 
of  international  commissions  and  courts  that  will  be 
necessary. 

The  author's  main  contention  is  most  clearly  stated 
in  his  twelfth  chapter,  entitled,  *' Where  National  Con- 
trol Breaks  Down."  Just  as  the  old  extreme  theory  of 
individualism  broke  down,  as  an  adequate  means  of 
guaranteeing  the  individual  ' '  a  square  deal ' '  in  his  eco- 
nomic life,  so  the  extreme  form  of  nationalism  has  in 
turn  broken  down.  Such  is  the  contention.  The  indi- 
vidual nation  had  to  step  in  to  protect  its  citizens,  one 
against  the  other,  in  matters  of  ''unfair  competition.'' 
This  meant  various  protective  statutes  and  the  erection 
of  various  administrative  bodies,  such  as,  in  the  United 
States,  the  Interstate  Commerce  Commission,  the 
Federal  Trade  Commission,  and  the  like.  The  same 
problem,  it  is  asserted,  has  now  arisen  as  among 
nations.  ''The  economic  life  of  the  world  has  in  many 
ways  burst  the  confines  of  the  individual  state.  In  so 
far  as  it  has,  it  is  without  a  co-extensive  control.  Nations 

XX 


INTRODUCTION 

have  merely  accentuated  the  fierceness  of  individual 
competition  in  world  trade  and  financing.  To  un- 
controlled individualism  has  been  added  an  uncontrolled 
nationalism.  This  situation  points  conclusively  to  the 
necessity  for  an  international  organization  vested,  even 
if  in  the  most  rudimentary  form,  with  the  essential  ele- 
ments of  government. ' ' 

Two  points  may  be  suggested  in  this  connection. 
One  is  that  the  commercial  policy  of  nations  has  his- 
torically played  a  leading  role  in  the  continuous  struggle 
of  nations  for  a  dominating  position  in  the  world's 
affairs.  Political  power  and  economic  strength  have 
gone  hand  in  hand.  Whichever  of  these  two  may  have 
seemed  the  goal  of  national  effort  at  any  particular  time, 
each  has  been  a  weapon  for  increasing  the  other.  It  is 
self-evident  that  economic  strength  is  a  vital  element  in 
securing  political  predominance.  It  is  equally  clear 
historically  that  political  power  has  been  used  as  a 
means,  and  frequently  a  ruthless  one,  of  increasing 
economic  strength.  Tariffs,  prohibitions,  bounties,  sub- 
sidies, commercial  treaties,  colonial  policies,  navigation 
laws,  tariff  wars,  and  ultimately  real  wars  are  inextri- 
cably bound  up  together  in  the  history  of  national 
rivalry.  Consequently  any  fundamental  consideration 
of  the  problem  of  whether  it  is  possible  to  soften,  or  to 
restrain  within  bounds,  this  struggle  of  nations  for 
prestige  and  power  must  deal  fully  with  the  underlying 
facts  of  commercial  rivalry  and  the  possibility  of  its 
restraint  or  control.  So  much  has  long  ago  been  granted 
by  all  thoughtful  adherents  of  the  League  of  Nations 
idea.  In  covering  so  fully  the  manifold  phases  of  com- 
mercial policy  in  the  light  of  his  main  concept,  Mr. 
Culbertson  makes  a  welcome  and  timely  contribution  to 
the  chief  problem  of  reconstruction. 

The  second  point  is  that  in  view  of  the  fact  that  we 
are  already  seriously  discussing  the  possibility  of  some 
international  control  of  the  relations  of  labor  and  capi- 

xxi 


INTKODUCTION 


tal,  of  hours  of  labor  and  conditions  of  employment, 
the  proposition  for  some  international  control  of  com- 
mercial policy  is  relatively  simple.  The  phrase  ''com- 
mercial policy'*  has  come  to  mean  the  policy  of  nations 
toward  one  another  in  favoring  or  encouraging  their 
own  citizens  in  international  competition.  The  rela- 
tions of  labor  and  capital  we  have  hitherto  looked  upon 
as  a  purely  domestic  problem.  If  we  are  to  have  inter- 
national agreements  as  to  conditions  of  employment  and 
international  commissions  and  tribunals  to  handle  these 
matters,  to  balk  at  an  international  control  of  com- 
mercial policies  would  be  to  strain  at  the  gnat  and  swal- 
low the  camel. 

It  should  also  be  stated  that,  in  coming  to  his  con- 
clusions, Mr.  Culbertson  has  not  done  so  lightly  or  with- 
out due  consideration  of  what  is  enduring  and  valuable 
in  the  spirit  of  nationalism.  He  is  not  a  sentimental 
internationalist  in  his  philosophy.  He  is  not  an  indi- 
vidualist free-trader  in  his  economics.  His  first  pub- 
lished work  was  an  appreciation,  written  con  amore,  of 
the  economic  philosophy  and  policy  of  Alexander  Hamil- 
ton, the  sanest,  the  most  profound,  and  the  most  con- 
vinced of  the  exponents  of  nationalistic  economics.  But 
he  would  not  admit  for  a  moment  that  he  has  departed 
in  any  way  from  Hamiltonian  principles  in  his  present 
recommendations.  We  should  not  forget  that  Hamil- 
ton's advocacy  of  a  strong  Federal  union  was  looked 
upon  by  the  cautious  sectionalists  of  his  time  as  a  radical 
departure  from  safe  and  established  policy.  As  Mr. 
E.  S.  Martin  recently  pointed  out  in  one  of  his  happy 
editorials,  Washington  was  an  adventurous  soul,  quite 
ready  to  meet  a  new  situation  with  a  bold  and  untried 
programme.  The  same  was  certainly  true  of  Hamilton. 
There  is  no  necessary  and  inherent  conflict  between  the 
nationalism  of  his  day  and  the  support  of  a  League  of 
Nations  in  ours. 

The  writer  of  an  introduction  is  allowed  some  per- 

xxii 


INTRODUCTION 

fional  reference,  I  believe,  and  I  may  perhaps  say  that 
It  was  under  my  direction  that  Mr.  Culbertson  made  his 
early  studies  into'  the  history  and  principles  of  commer- 
cial policy.  In  the  work  just  mentioned  he  has  been 
kind  enough  to  refer  to  what  he  believes  to  have  been 
my  influence  on  his  own  intellectual  processes.  I  speak 
of  this  merely  to  indicate  my  great  interest  in  noting 
the  point  to  which  he  has  come  in  his  consideration  of 
the  new  problems  that  confront  us  as  a  heritage  from 
the  war.  It  is  significant  of  the  widespread  changes  in 
men's  minds  regarding  the  foundations  of  national 
policy  that  one  so  steeped  in  the  nationalistic  conception 
of  society  should  go  so  far  in  his  concessions  to  the  neces- 
sity for  some  form  of  international  control. 

Having  committed  myself  to  this  personal  reference 
m  order  to  make  Mr.  Culbertson 's  position  somewhat 
clearer  to  the  reader,  I  must  continue  it  to  the  extent  of 
saying  that,  although  heartily  recommending  a  serious 
consideration  of  the  author's  treatment  of  his  intricate 
subject,  I  am  not  prepared  to  commit  myself,  at  the 
present  stage  of  my  thinking,   to  accepting  his  final 
conclusions.     As  one  who  has  always  looked  upon  the 
struggle  of  human  groups  as  an  inevitable  part  of  the 
processes  of  history,  this  would  be  hard  for  me.    On  the 
other  hand,  we  have  all  been  forced  by  the  experience 
of  the  Great  War  to  discard  many  of  our  fundamental 
concepts.    Believing  that,  despite  all  theories,  we  must 
give  support  to  any  serious  proposal,  however  experi- 
mental,  that  seems  to  give  promise  of  preventing  a 
repetition  of  recent  world  experiences  for  the  immediate 
future  at  least,  I  am  bound  to  admit  that  logically  any 
such  effort  must  involve  some  international  control  of 
commercial  policy.     Whether  this  means  a  permanent 
change  in  mternational  relations,  or  only  a  necessary 
makeshift  to  tide  over  a  period  of  readjustment  and 
reconstruction,  is  quite  another  matter.    There  are  some 
deep  historical  and  philosophical  reasons  for  maintaining 

xxiii 


INTRODUCTION 

that  a  League  that  is  not  a  League  against  something, 
that  aims  at  cooperation  for  its  own  sake,  and  is  not 
cooperation  forced  by  evolutionary  struggle,  cannot 
have  permanent  vitality  and  significance.  But  a  discus- 
sion of  this  problem  would  carry  us  too  far  afield,  and 
the  present  time  demands  a  consideration  of  how  we 
can  help  to  establish  peace  and  harmony  for  a  generation 
rather  than  of  what  are  the  permanent  forces  that  will 
be  operative  in  future  ages. 

Henry  C.  Emery. 


COMMERCIAL    POLICY 

IN  WAR   TIME  AND   AFTER 

PART  I 

WAR'S  EFFECT  ON  INDUSTRY 


{ 


We  need  to  beware  of  patchwork.    The  view  of  the  Labour 
Party  is  that  what  has  to  be  reconstructed  after  the  war  is  not 
this  or  that  Government  Department,  or  this  or  that  piece  of 
social  machinery;  but,  so  far  as  Britain  is  concerned,  society 
itself.      The  individual  worker,  or  for  that  matter  the  indi- 
vidual statesman,  immersed  in  daily  routine  — like  the  in- 
dividual soldier  in  a  battle  —  easily  fails  to  understand  the 
magnitude  and  far-reaching  importance  of  what  is  taking  place 
around  him.      How  does  it  fit  together  as  a  whole?      How 
does  it  look  from  a  distance?     Count  Okuma,  one  of  the  oldest, 
most  experienced  and  ablest  of  the  statesmen  of  Japan,  watch- 
ino'  the  present  conflict  from  the  other  side  of  the  globe,  de- 
clares it  to  be  nothing  less  than  the  death  of  European  civilisa- 
tion     Just  as  in  the  past  the  civilisations  of  Babylon,  Egypt, 
Greece,  Carthage  and  the  great  Roman  Empire  have  been  suc- 
cessively  destroyed,   so,   in  the  judgment   of   this   detached 
observer,  the  civilisation  of  aU  Europe  is  even  now  receiving 
its  death-blow.     We  of  the  Labour  Party  can  so  far  agree  in 
this  estimate  as  to  recognise,  in  the  present  world  catastrophe, 
if  not  the  death,  in  Europe,  of  civilisation  itself,  at  any  rate 
the  culmination  and  collapse  of  a  distinctive  industrial  civihsa- 
tion,  which  the  workers  will  not  seek  to  reconstruct.     At  such 
times  of  crisis  it  is  easier  to  slip  into  ruin  than  to  progress 
into  higher  forms  of  organisation. 

Programme  of  the  British  Labour  Party  on  Reconstruction. 


CHAPTER  I 

RELATION  OF  COMMERCIAL  POLICY  TO  RECONSTRUCTION 

Facing  the  problems  of  reconstruction  —  Their  nature  and  variety 
--  Commercial  policy  as  a  reconstruction  problem  —  Concepts 

^fi,Jf  J  i?''^\.''°°'°'T®  ^^^°'®  *^®  war -The  permanent 
value  of  nationalism -Danger  from  the  spirit  of  Prussianism 

i^^n^wr'""""^^"  optimistic  fatalist -Democracy  and  a 
constructive  programme  necessary  —  America 's  part  in  the 
world  sett  ement  -  A  new  social  point  of  view  -  Three  stages 

Prussian   military   power  has   been   in  its   outward 
symbols  discredited  and  destroyed.      The  greatest  of 
world  conflicts,  so  replete  with  tragic  happenings  for 
men  and  nations,  has  ended  in  a  complete  victory  for 
the  western  democracies.      But  we  should  harbor  no 
delusive  hope  of  having  secured  something  of  perma- 
nent value  through  military  victory  alone.     By  military 
success  we  have  not  solved  the  perplexing  problems 
before  the  American  Nation  and  the  world  —  we  have 
merely  reached  them.     War  is  a  negative  thing;  it  has 
simply  removed  an  obstruction.      Victory  has  brought 
responsibility.     Our  task  now  is  the  rebuilding  of  our 
social,  economic,  and  political  life.     We  are  face  to  face 
with  the  work  of  reconstruction. 

The  war  has  solved  some  problems,  clarified  others 
and  created  still  others."  We  live  in  a  different  world 
from  that  of  1914.  It  is  different  both  in  fact  and  in 
thought.  While  we  were  absorbed  in  the  conflict  of 
arms,  important  changes  were  wrought  in  the  social 
economic,  and  political  structure  of  the  world,  and  al- 
most unconsciously  we  began  to  realize  the  inadequacy 


COIVIMERCIAL  POLICY 

of  ideas  and  institutions  which  before  were  regarded, 
except  by  a  small  minority,  as  not  subject  to  criticism. 

The  problems  of  reconstruction  are  as  diverse  and 
intricate  as  the  life  of  mankind.      No  aspect  of  our 
social,    economic,    and    political   life   has    escaped    the 
modifying   influences  of  forces  released  by   the  war. 
Nevertheless,  almost  all  of  these  problems  existed  in  a 
more  or  less  acute  form  before  the  war.     Our  interest  in 
them  has  been  deepened  because  in  some  cases  they  were 
contributing  causes  of  the  war  and  in  other  cases  the 
progress  of  the  war  has  made  it  impossible  longer  to 
ignore  them  with  impunity.     In  America,  and  in  other 
nations  too,  interest  has  been  stimulated  in  a  range  of 
widely  differing  problems.     They  include  labor  and  its 
right  to  a  better  and  more  responsible  place  in  industry, 
its  distribution  in  both  agricultural  and  manufacturing 
pursuits,  the  employment  of  women  and  children,  and 
the   proper   absorption   into   peaceful  pursuits   of   the 
demobilized  soldiers,  sailors,  and  civilian  war  workers. 
Agricultural  questions,  of  supreme  importance,  relate  to 
the  price  and  distribution  of  food,  the  development  of 
the  public  domain,  loans  to  farmers,  and  agricultural 
cooperation  and  land  tenure.      The  conservation,  de- 
velopment, and  distribution  of  our  great  natural  re- 
sources—lumber, coal,  oil,  metals,  and  others  — have 
a  renewed  importance  as  a  result  of  our  war-time  experi- 
ence.    Taxation  and  other  phases  of  public  finance,  the 
efficiency  and  purpose  of  our  military  establishment,  re- 
ligion and  education,  communication  and  transportation, 
corporate    organizations  —  these    and    other    questions 
must  be  reconsidered  in  the  light  of  recent  happenings. 
Even  our  social,  economic,  and  political  institutions  are 
being  put  on  the  defensive.     Since  the  Russian  revolu- 

4 


A  RECONSTRUCTION  PROBLEM 


tion  we  do  not  take  so  much  for  granted.  As  important 
as  any  of  the  problems  of  reconstruction  are  those  of 
commercial  policy.  We  are  thinking,  more  now  than 
before  the  war,  of  the  wider  aspects  of  competition  be- 
tween nations  —  the  tariff,  foreign  trade,  and  the  activi- 
ties of  our  commercial  interests  abroad. 

The  international  problems  of  reconstruction  are  more 
baffling  than  the  domestic  problems.  Territorial,  dynas- 
tic, national,  racial,  and  social  questions  which  existed 
before  the  war  and  were  contributing  causes  of  the  con- 
flict are  to  be  passed  on  for  solution  during  the  recon- 
struction period.  Poles,  Czecho-Slovaks,  Jugo-Slavs, 
and  Armenians  deservedly  seek  independent  national 
existence.  Dynastic  houses,  divested  of  their  autocratic 
power,  plot  and  hope  for  a  reaction  that  will  serve  their 
selfish  ends.  Racial  antipathies  seem  at  times  to  present 
problems  which  defy  solution.  Revolution  in  some 
countries  threatens  to  destroy  the  last  securities  of  man's 
common  life.  Land-owning,  trading,  and  investing 
classes,  propagating  their  own  interests  in  the  guise  of 
patriotism,  becloud  the  issues  of  a  democratic  peace. 
Reconstruction  in  world  affairs  is  in  fact  a  complex  task 
involving  military  control,  territorial  realignments,  the 
adjustment  of  racial  rivalries  —  often  embittered  by 
oppression  and  turned  into  unnatural  channels  by  propa- 
ganda, colonial  claims  and  policies,  the  protection  and 
education  of  the  economically  baclnvard  peoples  of  the 
world,  the  regulation  and  restraint,  where  desirable,  of 
trading  and  financial  interests,  and  the  devising  of  an 
international  organization  that  will  tend  at  least  toward 
the  prevention  of  a  recurrence  of  world  wars. 

Reconstruction  should  mean  much  more  than  a  mere 
rearrangement  of  the  world  that  existed  prior  to  1914. 
It  should  bring  revolutionary  changes,  but  by  orderly 

5 


COMIVIERCIAL  POLICY 

(parliamentary')  means.  Let  us  consider  carefully  what 
it  is  we  are  setting  out  to  rebuild,  what  it  is  we  are  to 
construct  on  the  foundations  of  the  past.  The  democ- 
ratization of  our  national  and  world  life  will  in  many 
places  run  counter  to  exclusive  class  and  national  in- 
terests w^hich  can  no  longer  plead  a  law  or  a  tradition  as 
alone  a  sufficient  justification  for  their  maintenance. 
Ideas  of  ** natural  right/'  *' vested  interests/'  *' personal 
liberty/'  and  '* national  sovereignty"  should  no  longer 
bar  interference  with  conditions  that  the  war  has  demon- 
strated to  be  intolerable  because  in  many  cases  they 
made  the  war  possible.  No  lasting  peace  can  be  brought 
about  if  we  fail  to  reexamine  the  fundamental  relations 
of  men  and  nations  and  to  act  upon  the  knowledge  thus 
obtained. 

It  is  t^le  function  of  this  book  to  examine  those  aspects 
of  the  work  of  reconstruction  that  have  to  do  with  com- 
mercial policy.  The  conquest  of  nature  and  the  methods 
adopted  by  man  to  supply  his  material  wants,  closely 
correlated  as  they  are  with  the  progress  of  man's  moral 
and  spiritual  life,  make  interesting  and  important 
chapters  in  the  annals  of  the  human  race.  Production 
and  trade  have  always  been  vital,  and  as  society  has 
grown  more  complex  and  as  government  has  concerned 
itself  more  with  the  interests  of  the  people  and  less  with 
the  aspirations  of  reigning  dynasties,  they  have  increas- 
ingly absorbed  the  attention  not  only  of  business  men 
but  of  statesmen.  The  importance  of  the  economic 
factor  in  reconstruction  must  be  evident  to  the  most 
casual  observer  of  the  myriad  activities  of  men  in  agri- 
culture, mining,  manufacturing,  shipping,  trading,  and 
finance.  These  activities  have  not  always  resulted  in 
harmony ;  they  have  led  at  times  to  antagonisms,  rival- 

6 


A  RECONSTRUCTION  PROBLEM 

ries,  and  even  wars.  Intensified  by  racial  feelings,  na- 
tional aspirations,  and  dynastic  ambitions,  they  have  un- 
questionably contributed  in  large  measure  to  inter- 
national conflicts. 

Under  these  conditions  we  might  expect  to  find,  at 
least  among  democratic  peoples,  strong  political  senti- 
ment in  favor  of  a  plan  which,  while  just,  would  prevent 
commercial  and  financial  rivalry  from  dragging  nations 
into  war.  But  the  advocacy  of  such  a  plan  has  not  in 
the  past  gone  much  beyond  the  stage  of  academic  dis- 
cussion. Problems  of  commercial  policy  have  almost 
universally  been  considered  wholly  from  the  standpoint 
of  individual  nations  seeking  their  own  advancement. 
The  commercial  nations  have  either  sought  their  selfish, 
narrow  ends  under  the  inspiration  of  Machiavellian  prin- 
ciples by  any  method  that  would  achieve  their  purposes, 
or  they  have  assumed  the  complacent  position  that  they 
are  always  right  and  that  whatever  benefits  them  will 
benefit  all  others.  The  deliberate  use  of  trade  and 
finance  by  some  nations  to  further  selfish  ends  and  the 
studied  indifference  to  them  of  others  were  large  factors 
in  making  inevitable  the  most  terrible  war  in  history. 

Not  infrequently  when  the  world  aspect  of  commer- 
cial policy  is  dwelt  upon  the  conclusion  is  hastily  reached 
that  nationalism  is  an  evil  that  must  be  done  away  with. 
Patriotism  is  labelled  chauvinism  and  is  held  up  as  one 
of  the  sinister  influences  of  the  world.  National  aims, 
aspirations,  and  ideals  are  described  as  relics  of  primi- 
tive life.  Such  a  position  fails  to  take  account  either 
of  the  facts  or  of  human  needs.  The  exclusive  na- 
tionalist who  sneers  at  international  action  is  no  more 
objectionable  than  the  advocate  of  a  world  state  who, 
with  equal  lack  of  insight,  forgets  the  importance  and 

7 


COMMERCIAL  POLICY 

• 

value  of  the  nation  as  a  unit  of  society.  As  a  matter 
of  fact,  both  national  and  world  action  are  necessary  in 
the  constructive  task  which  is  before  us.  We  should 
avoid  discriminatingly  the  evil  tendencies  in  both,  recog- 
nizing that  each  has  its  proper  sphere.  We  shall  not 
progress  far  toward  the  goal  of  justice  and  right  until 
we  lay  down  as  one  of  the  first  principles  that  national- 
ism and  internationalism  are  not  antagonistic,  but  com- 
plementary, ideals.  There  are  commercial  problems 
that  now  and  always  will  belong  to  the  nation  and  that 
can  be  solved  only  by  it.  But  there  comes  a  time  in 
the  consideration  of  the  problems  of  trade  and  finance 
when  the  national  organization  is  inadequate  for  their 
solution  and  some  degree  of  international  action  becomes 
imperative. 

Military  victory  should  sober  rather  than  elate  us. 
The  crushing  of  Germany  has  not  removed  all  of  our 
enemies.  The  breaking  up  of  organized  Prussianism  in 
Central  Europe  is  a  memorable  stage  in  the  progress  of 
democratic  ideals  and  a  step  toward  the  universal  ac- 
ceptance of  the  principles  of  responsible  government, 
but  in  the  days  of  reconstruction  the  spirit  of  the  Prus- 
sian in  many  a  tempting  guise  will  lurk  in  the  domestic 
and  international  programmes  that  will  be  brought  for- 
ward. Reactionaries,  having  dwelt  too  long  amid  the 
musty  traditions  of  the  past,  will  appear  with  their 
plausible  warnings  against  innovation.  They  will  op- 
pose any  departure  from  the  old  chaotic  order  of  things 
because  its  preservation  is  profitable  to  them  and  to 
their  class.  Such  men,  regardless  of  where  they  live, 
are  Prussians  at  heart.  If  their  counsels  prevail  in  the 
final  settlement,  the  Allies  will  be  accomplices  to  the  very 
thing  that  we  denounced  in  Germany. 

8 


A  RECONSTRUCTION  PROBLEM 


Bolshevism  is  a  symptom  of  an  unjust  social  condi- 
tion and  a  warning  that  fundamental  reforms  are  neces- 
sary. Russia  is  being  visited  today  with  the  sins  of 
generations  that  have  exploited  and  trod  upon  the 
masses.  Bolshevism,  with  its  misdirected  enthusiasm 
and  programme  of  destruction,  may,  like  war,  serve  to 
remove  an  obstruction,  but  it  offers  no  constructive  prin- 
ciples for  guidance  in  the  future.  We  shall  not  get  rid 
of  it,  however,  by  denouncing  it.  Its  antidote  is  a  con- 
structive programme  that  will  carry  our  much  lauded 
principles  of  democracy  down  into  and  through  the  very 
structure  of  our  commercial  and  industrial  life. 

Those  optimistic  fatalists  who  tell  us  that  people  are 
so  appalled  by  the  losses  of  the  war  that  they  will  never 
again  draw  the  sword  are  not  the  least  dangerous  of  the 
enemies  of  a  sound  policy  of  reconstruction.  They  talk 
confidently  of  the  world's  being  on  the  threshold  of  a 
new  era  when  wars  will  be  no  more.  They  say  also  that 
people  have  learned  to  organize  and  pool  their  resources 
for  war  and  that  they  will  naturally  continue  their  co- 
operation during  peace.  But  too  often  definite  plans 
for  achieving  this  complex  result  are  lacking.  There 
is  little  comprehension  of  the  difficulties  which  lie  ahead 
or  of  the  selfish  and  unscrupulous  policies  which  must 
be  combatted  lest  they  be  adopted  by  nations,  dynasties, 
and  commercial  interests.  We  may  be  very  certain  that 
a  permanent  and  just  peace  will  not  come  merely  be- 
cause the  war  has  been  full  of  horrors  and  tragedies.  The 
cry  '* never  again"  is  not  a  new  one.  Nothing  exists  in 
the  present  situation  that  will  insure  the  world,  as  a 
matter  of  course,  against  following  the  old  circle  of 
economic  rivalries,  balancing  alliances,  military  prepara- 
tions, and  war. 

The  way  to  success  in  the  days  of  reconstruction  lies 

9 


COMMERCIAL  POLICY 

neither  with  the  paralyzing  pessimist  or  selfish  reaction- 
ary who  feels  that  we  must  always  follow  the  errors  of 
the  past,  nor  with  the  Bolshevist,  nor  with  the  planless 
optimist  who  believes  that  the  new  order  of  things  will 
just  happen.  It  lies  with  those  who,  giving  full  weight 
to  the  background  of  the  war  and  holding  firmly  to  the 
ideals  of  democracy,  plan  with  insight  and  work  out  to 
its  minutest  detail  the  constructive  programme  of  a 
permanent  peace. 

In  the  work  of  rebuilding  the  world  the  American 
nation  has  a  unique  and  important  part.     We  entered 
the  war  in  the  spirit  neither  of  conquest  nor  even  of 
revenge.     We  saw  the  world  menaced  by  a  power  which, 
if  successful,  would  destroy  all  that  this  country  has 
stood  for.      We  were  willing  to  give  without  stint  in 
order  that  national  and  international  justice  might  pre- 
vail and  that  there  might  be  established  in  the  world  the 
democratic  principle  in  political  and  commercial  affairs. 
W8  felt  a  common  interest  with  the  peoples  of  Italy, 
France,  Belgium,  Great  Britain,  and  the  self-governing 
British   dominions   in   their   long   and   bitter   struggle 
against  the  military  powers  of  Central  Europe.     We  felt 
that  they  were  fighting  our  battles.     However  varied  the 
individual  aims  of  the  nations  engaged  in  the  great 
struggle,  undoubted  evidence  that  our  past  and  future 
were"  bound  up  with  theirs  led  us  inevitably  to  cast  our 
lot  with  them.      Our  armed  forces  on  the  sea  and  at 
Chateau  Thierry,  St.  Mihiel,  and  along  the  Meuse  trans- 
lated American  vigor  and  enthusiasm  into  war.     They 
went  into  the  war  without  a  selfish  motive.     They  faced 
a  hard  task  in  the  spirit  of  sacrifice.     They  were  willing, 
if  need  be,  to  lay  down  their  lives,  as  so  many  of  the 
brave  Allied  troops  had  done,  in  order  that  the  world 

10 


I 


h 


A  RECONSTRUCTION  PROBLEM 

might  be  redeemed.     Now  that  their  work  is  so  nobly 
accomplished,  we  should  not  fail  to  carry  on  in  the  same 
spirit  of  devotion  the  work  of  healing  the  wounds  of  the 
nations.     Vindictiveness,  punishment,  and  national  sel- 
fishness, if  allowed  to  govern  in  the  readjustments,  will 
return  in  future  generations  to  plague  the  world.     The 
reactionary  statesmanship  of  Metternich  was  triumphant 
at  the  Congress  of  Vienna,  but  only  temporarily,  for  it 
forced  the  peoples  of  Europe  into  revolution.     Germany 
in  1871  took  from  France  the  provinces  of  Alsace  and 
Lorraine  and   thereby  made  reconciliation   impossible. 
Our  own  Civil  War  was  followed  by  an  illiberal  and 
irrational  reconstruction  which  fills  some  of  the  darkest 
pages  of  American  history.      History  has  many  other 
warnings  to  those  on  whom  the  direction  of  national  and 
international   policies  rest.      The  world  will  have  no 
gains  to  offset  the  losses  of  the  war  if  the  Allies  content 
themselves  with  destroying  Germany's  militarism  and 
national  power  and  at  the  same  time  merely  build  up 
their  own.      That  procedure  will  change  the  pawns  in 
the  game,  but  not  the  game.     Unless  the  spirit  of  sacri- 
fice guides  the  councils  of  the  Allies  in  the  constructive 
work  before  them,  we  may  expect  the  world  to  drift  back 
into  the  evils  of  international  anarchy.    Unless  the  world 
view  of  affairs  in  some  degree  softens  the  exclusive  na- 
tional views  of  some  of  the  leaders  of  the  nations,  the 
men  who  have  laid  down  their  lives  in  the  cause  of  better 
things  will  have  died  in  vain. 

The  task  before  national  legislatures  and  diplomats 
of  defining  our  ideals  and  converting  them  into  laws  and 
treaties  is  a  task  quite  as  essential  as  and  infinitely 
more  difficult  than  the  raising  of  armies  and  the  building 
of  navies.     The  days  immediately  before  us  are  critical. 

11 


COMMERCIAL  POLICY 

The  war  has  profoundly  altered  the  economic  conditions 
within  every  nation.  It  has  modified  not  only  our  way 
of  doing  things  but  also  our  way  of  thinking  about  them. 
It  has  revolutionized  our  ideas  concerning  industry  and 
trade.  Old  theories  of  commercial  relations  have  been 
called  into  question  or  scrapped.  New  ideas  are  finding 
ready  acceptance.  More  than  ever  before  people  are 
interested  in  what  ought  to  be  rather  than  in  what  is. 

In  the  United  States  thousands  of  business  and  pro- 
fessional men  by  giving  their  money  and  talents  in  the 
public  cause  have  felt  the  broadening  and  inspiring 
effect  of  public  service.  They  have  learned  to  sacrifice 
and  they  have  enjoyed  it.  They  have  submitted  to  the 
restrictions  of  the  War  Trade  Board  and  the  War  In- 
dustries Board  and  have  learned  to  recognize  that  even 
in  what  they  once  thought  was  their  private  business 
the  public  is  more  controlling  than  the  private  interest. 
They  are  now  more  willing  to  look  upon  their  businesses 
not  only  as  organizations  for  private  gain,  but  as  trusts 
which  they  hold  for  the  public,  and  upon  themselves 
not  merely  as  seekers  after  gain,  but  as  trustees. 

A  more  general  recognition  of  the  importance  to 
society  of  the  producer,  whether  on  the  farm  or  in  the 
factory,  has  come  as  a  result  of  our  war  experiences. 
The  war  could  not  have  been  won  without  the  coopera- 
tion of  the  farmer,  the  laborer,  the  manufacturer,  and  the 
merchant.  Back  of  the  armies  in  the  field,  who  deserv- 
ingly  received  our  plaudits,  were  the  men  and  women 
who  toiled  in  factories ;  the  chemists,  metallurgists,  and 
other  experts  who  worked  many  weary  hours  on  the 
problems  of  war  material;  and  the  farmers,  manufac- 
turers, and  merchants  —  all  of  whom  deserve  praise  for 
loyalty  and  credit  for  helping  to  win  the  war.  Modern 
war  is  economic  as  well  as  military  in  its  methods. 

12 


\ 


A  RECONSTRUCTION  PROBLEM 

Germany  crumbled  at  last  in  large  part  because  her 
economic  system  could  no  longer  bear  the  strain  of  war. 
The  Allies  achieved  success  in  large  part  because  of 
their  control  of  raw  materials  and  because  of  their 
effective  economic  organization.  We  should  now  look 
upon  industry  and  commerce  as  part  and  parcel  of  our 
life.  "We  should  neither  fight  it  nor  ignore  it.  We 
should  devise  democratic  means  of  directing  and  con- 
trolling it  in  the  interests  of  public  welfare. 

More  than  anything  else  perhaps  the  war.  has  empha- 
sized the  world-wide  influence  of  trade  and  industry. 
Industrial  progress  or  change  in  one  country  can  no 
longer  be  ignored  in  others.  Policies  of  trade  and 
finance  pursued  by  one  nation  are  of  vital  concern  to 
others.  Nations  individually  must  consider  their  prob- 
lems in  the  light  of  world  tendencies.  More  important 
still,  nations  must  seek  collectively  the  solution  of  the 
great  questions  which  in  the  past  have  too  frequently 
been  left  to  take  care  of  themselves. 

The  war  has  made  us  more  internationally  minded 
than  we  were  in  1914.  At  the  same  time  it  has  increased 
the  military  and  economic  strength  of  our  nation.  How 
shall  this  strength  be  used?  Surely  not  to  further 
selfish  national  interests  that  will  rouse  the  jealousy  of 
other  nations  and  sow  the  seeds  of  future  strife.  Rather 
let  it  be  used  to  influence  sceptical,  and  perhaps 
reluctant,  peoples  to  accept  ideas  on  which  a  just  and 
permanent  peace  must  rest. 

Important  as  the  effect  of  the  war  has  been  in  modify- 
ing the  competitive  position  of  nations  in  industrial 
matters  and  in  intensifying  competition,  more  important 
and  fundamental  changes  have  taken  place  which  our 
nearness  to  our  problem  may  prevent  us  from  clearly 

13 


COMMERCIAL  POLICY 

discerning.  Industry  is  the  concern  not  merely  of  busi- 
ness men  but  of  all  society.  It  is  not  an  individual  but 
a  social  possession.  Ownership  no  longer  means  the  right 
to  do  as  one  pleases  with  the  business  under  one's  con- 
trol. Industry  has  become  so  powerful,  it  has  become 
so  vital  to  the  very  existence  of  society,  it  so  intimately 
concerns  the  welfare  of  many  people,  that  the  old  doc- 
trine of  freedom  as  applied  to  business  has  been  dis- 
carded, and  business  men,  whether  they  like  it  or  not, 
are  being  treated  as  trustees  of  the  interests  they  hold. 
In  order  to  appreciate  fully  however,  what  this  new 
attitude  toward  industry  and  trade  implies,  we  should 
look  back  and  consider  how  industry  has  come  to  occupy 
the  important  placo  it  now  holds  in  our  common  life. 

In  the  latter  part  of  the  18th  century  there  began  a 
movement  that  has  come  to  be  known  as  the  industrial 
revolution.  Before  this  epochal  change  began,  pro- 
duction was  carried  on  in  the  home  or  in  small  shops. 
Goods  were  made  largely  by  hand.  Division  of  labor 
was  not  carried  far.  The  handicraftsman  and  the  mer- 
chant were  often  one  and  the  same  person.  The  tech- 
nical methods  used  were  handed  down  from  father  to 
son .  and  in  essentials  were  centuries  old.  Yam  was 
spun  on  the  old  spinning  wheel ;  cloth  was  woven  on  the 
hand  loom ;  shoes  were  made  by  the  cobbler. 

Under  the  influence  of  the  revolution  machinery  sup- 
planted hand  production ;  steam  was  harnessed  and  did 
the  work  of  many  human  beings ;  factories  were  built  and 
in  them  were  gathered  laborens  who  no  longer  controlled 
their  product  but  who  worked  for  a  wage.  A  series 
of  great  inventions  brought  about  these  changes.  In 
1769  the  water-frame  was  invented  by  Arkwright  and 
the  use  of  water  power  in  spinning  was  made  possible. 

14 


I 


A  RECONSTRUCTION  PROBLEM 

In  1T70  Hargreaves  patented  his  spinning  jenny.  Nine 
years  later  Crompton  further  improved  spinning 
machinery  by  inventing  the  so-called  **mule.'*  With 
these  spinning  inventions  more  yam  could  be  spun  than 
the  old  hand  looms  could  weave.  This  situation  was 
reversed  in  1785,  however,  when  Cartwright  invented 
the  power  loom.  Whitney  invented  the  cotton  gin  in 
1792  and  another  obstacle  to  rapid  production  was 
removed.  Steam  meanwhile  had  been  applied  to 
machinery.  Watts'  steam  engine  was  invented  in  1769 
and  was  quickly  utilized  in  spinning  and  weaving,  in 
the  iron  industry,  and  in  transportation.  These  great 
inventions  were  only  a  beginning.  Machinery  was 
gradually  applied  to  every  industry  and  every  walk  of 
life.  No  one  can  look  today  at  a  textile  mill,  a  steel 
rolling  plant,  an  ocean  steamer,  a  modem  farm  machine, 
without  marvelling  at  the  ingenuity  of  man. 

These  inventions  stimulated  production.  The  whole 
structure  of  society  was  changed.  The  factory  system 
came  into  being.  In  England,  where  the  influence  of  the 
revolution  was  most  acutely  felt,  the  country  districts 
were  depopulated  and  cities  grew  apace.  Society 
tended  to  become  divided,  so  far  as  production  was  con- 
cerned, into  the  ''capitalists"  or  employers  and  the 
laborers  who  worked  for  a  wage.  Wealth  accumulated 
in  the  hands  of  one  class ;  the  other  lived  often  in  squalor 
and  want,  herded  in  dismal  slums  of  overcrowded  and 
unsanitary  cities.  The  labor  problem  came  into 
existence. 

Those  who  were  interested  in  the  expansion  of  indus- 
try and  trade  were  supported  in  their  plans  by  the 
philosophy  of  individualism  which  was  being  advanced 
by  an  increasingly  influential  group  of  economists.  This 
laissez-faire  doctrine,  as  it  was  called,  argued  that  if 

15 


COMMERCIAL  POLICY 


A  RECONSTRUCTION  PROBLEM 


men  were  permitted  to  pursue  their  own  interests  unre- 
strained, their  action  would  result  in  the  best  interests 
of  society  being  served.  That  government  was  said  to 
be  best  that  governed  least.  Free  competitior  with  a 
minimum  of  government  regulation  was  conceived  to 
be  the  best  for  society.  An  ^* invisible  hand."  it  was 
argued,  guided  the  selfish  interests  of  man  so  that  what 
he  did  in  his  own  behalf  promoted  also  the  social  welfare. 

As  a  matter  of  fact,  laissez  faire  promoted,  not  human 
welfare,  but  the  class  interests  of  the  mill  owners  and 
the  great  merchants  who  were  supplanting  the  land- 
owning and  clerical  classes  as  the  chief  influences  in 
European  Governments.  Individualism  had  some  bene- 
ficial effects  in  breaking  down  old  traditions,  outworn 
regulations,  and  false  economic  theories,  but  it  was 
entirely  inadequate  as  a  social  philosophy  for  the  great 
industrial  society  which  was  developing.  Free  compe- 
tition between  the  capitalists  and  laborers  was  unequal, 
and  resulted  in  the  exploitation  of  labor.  The  story 
of  the  struggle  for  the  adequate  protection  of  labor  by 
law  and  by  its  own  organized  effort  cannot  be  told  here. 
But  so  firmly  was  the  idea  of  ** liberty,'*  of  ** freedom," 
wrapped  up  with  the  interests  of  the  ruling  class  that 
only  slowly  was  legislation  adopted  to  correct  the  evil 
tendencies  of  the  doctrine  that  a  man  could  do  as  he 
pleased  with  his  ** private  property.'* 

In  the  meantime  there  had  occurred  a  marvelous 
expansion  of  industry.  The  industrial  structure  which 
today  we  take  as  a  matter  of  course  is  largely  a  product 
of  the  19th  century.  Enormous  quantities  of  goods 
were  produced  at  relatively  low  prices.  The  ordinary 
man  could  purchase  things  which  in  the  18th  century 
were  only  for  the  rich.  Goods  accumulated  and 
demanded  new  markets.     Then  came  the  great  events 

16 


A 


i 


of  the  second  phase  of  the  industrial  revolution.  The 
world  witnessed  the  coming  of  the  railroad,  the  steam- 
ship, the  telegraph,  and  the  telephone.  Transportation 
and  communication  welded  the  world  together.  A 
journey  that  to  Marco  Polo  was  as  a  historical  event 
became  a  mere  business  undertaking. 

Transportation  and  communication,  developed  by 
industry  and  trade,  in  turn  stimulated  them.  With  the 
increased  industrialization  of  Great  Britain^  and  later 
of  the  United  States  and  of  Germany,  came  the  seeking 
for  raw  materials  and  markets  in  the  less  economically 
advanced  parts  of  the  world.  Colonies  hitherto  almost 
forgotten  became  important.  *' Spheres  of  influence" 
were  carved  out  of  Africa  and  Asia.  The  new  large- 
scale  industry  depended  for  its  effectiveness  on  division 
of  labor,  and  division  of  labor  was  limited  by  the  extent 
of  the  market.  Mass  production  for  a  great  market  was 
the  keynote  of  the  new  industrial  regime.  More  goods 
were  produced  than  the  home  market  could  absorb  at  a  ^ 
profitable  price.  Foreign  markets  became  essential. 
Following  the  growth  of  industry  and  the  extension  of 
the  market  came  the  export  of  capital.  Investments  and 
concessions  abroad  were  in  some  cases  more  profitable 
than  home  enterprise. 

The  idea  of  freedom  and  laissez  faire,  limited  in 
some  degree  in  domestic  affairs,  reigned  supreme  in 
foreign  business  ventures.  Governments,  instead  of 
exercising  restraint  over  their  citizens,  backed  them  up. 
Nationalism  was  perverted  and  developed  into  a  com- 
bative imperialism.  The  Great  War  was  in  large 
measure  the  product  of  the  second  phase  of  the  indus- 
trial revolution.    It  also  brought  it  to  a  close. 

Under  the  necessity   of   war   industry  became   the 

17 


COMMERCIAL  POLICY 

servant  of  society.  Competition  was  restricted,  output 
was  regulated,  prices  were  fixed,  profits  were  limited. 
Man  demonstrated  that  lie  could  control  the  so-called 
economic  laws  which  some  individualists  said  controlled 
him.  If  there  is  one  lesson  that  the  war  rias  taught 
clearly,  it  is  that  free  competition  —  the  doctrine  of 
laissez  faire  —  is  a  failure  in  domestic  and  particularly 
in  international  life.  The  war  initiated  the  third  stage 
of  the  industrial  revolution.  In  it  mankind  w^ill  under- 
take to  direct  industry  and  trade  in  such  ways  as  to 
prevent  conflicts  between  nations  and  to  achieve  the 
nobler  aims  of  society.  Democratic  ideas  which  have 
determined  our  political  institutions  will  become  also 
the  test  of  adequacy  in  the  economic  relationships  in 
both  national  and  international  affairs. 

Industry  and  government  were  drawn  close  together 
by  the  war,  and  their  cooperation  is  likely  to  be  one  of 
the  permanent  results  of  the  great  struggle.  Peoples 
have  realized  as  never  before  how  vital  to  their  very 
existence  their  industries  may  be.  They  have  seen 
clearly  that  modern  armies  and  navies  cannot  fight  if 
the  men  and  the  women  in  the  factories  and  on  the  farms 
will  not  work.  Government  has  interfered  with  industry 
more  in  Great  Britain,  France,  Germany,  and  Japan 
than  in  the  United  States,  chiefly  because  these  nations 
were  longer  in  the  war.  But  even  here  production  was 
curtailed  in  non-essential  lines  and  stimulated  in  essen- 
tials. Raw  materials  were  controlled  and  allocated. 
New  industries  were  subsidized.  Imports  and  exports 
were  regulated  for  the  accomplishment  of  the  Govern- 
ment's purpose.  Industry  was  made  more  efficient  by 
improved  management,  automatic  machinery,  and  the 
standardization  of  products.  The  benefits  of  wide 
research  were  made  available  for  practical  use.     The 

18 


\ 


A  RECONSTRUCTION  PROBLEM 

facilities  of  production  and  distribution  were  concen- 
trated and  the  inefficient  eliminated. 

This  partnership  between  Government  and  industry 
will  not  be  broken  up  quickly,  if  at  all.  The  supplying 
of  the  needs  of  peoples  and  the  repairing  of  the  wastage 
of  war  are  of  too  vital  import  to  permit  the  economic 
system  of  nations  to  return  to  the  old  order  of  unre- 
stricted competition.  The  dangers  of  uncontrolled  trade 
and  finance  are  now  apparent  and  the  very  essence  of 
progress  requires  a  constructive  national  and  interna- 
tional programme  that  will  meet  these  dangers  squarely. 
The  forces  of  government  as  well  as  of  industry  and 
commerce  must  be  turned  into  channels  that  will  serve, 
not  destroy,  men.  We  have  seen  their  dangers  as 
masters;  we  have  learned  and  shall  not  forget  their 
usefulness  as  servants. 

The  fighting  in  France,  Belgium,  and  Italy  was  not 
merely  blasting  the  Allies'  victorious  way  through  the 
German  lines;  it  was  also  shattering  a  political  and 
economic  system  that  had  fastened  itself  on  the  world. 
Peoples  are  no  longer  satisfied  merely  with  political 
democracy.  They  are  demanding  the  democratization 
of  industry,  trade,  and  finance,  both  within  the  nation 
and  in  world  affairs.  This  book  is  written  in  the  firm 
belief  that  society  need  not  always  drift,  and  that  the 
peoples  of  the  great  nations,  having  a  vision  of  better 
things  and  an  aspiration  to  attain  them,  can,  through 
their  leaders,  act  to  achieve  their  purpose.  It  is  written 
in  the  hope  that  it  may  be  a  contribution  toward  the 
establishment  of  a  body  of  opinion  in  favor  of  a  liberal- 
ized commercial  policy  —  a  policy  that  •  takes  into 
account  the  essential  interests  of  individual  nations,  and 
at  the  same  time  subjects  truly  international  problems 
to  world  control. 

19 


CHAPTER  II 

EFFECT  OF  THE  WAR  IN  DIVERSIFYINQ  AMERICAN  INDUSTRY 

America's  industrial  position  in  1914  —  Diversifying  influences  set 
in  motion  by  the  war  —  New  glass  products,  including  labora- 
tory and  optical  glass  —  Surgical  instruments  —  Sueded 
gloves  —  Venetians  —  Camphor. 

At  the  time  of  the  outbreak  of  the  war  in  Europe  in 
1914  the  United  States  was  recognized  as  one  of  the  lead- 
ing industrial  nations  of  the  world.  The  number  of 
manufacturing  establishments  operating  in  the  country 
just  before  the  war  was  in  round  numbers  275,800, 
employing,  on  the  average,  approximately  7,000,000 
wage  earners.  The  annual  value  of  the  products  turned 
out  was  a  little  over  24  billion  dollars.^  This  production 
represented  a  wide  range  of  industrial  activity.  The 
value  of  manufactured  food  products  was  in  round 
numbers  $4,800,000,000;  of  textiles,  $3,400,000,000;  of 
iron  and  steel  products,  $3,200,000,000 ;  of  other  metal 
products,  $1,400,000,000;  of  lumber  products,  $1,600,- 
000,000;  of  leather  products,  $1,100,000,000;  of  paper 
and  printing,  $1,450,000,000;  of  liquors  and  beverages, 
$770,000,000;  of  chemicals,  $2,000,000,000;  of  stone, 
clay  and  glass  products,  $600,000,000 ;  of  tobacco  manu- 
factures, $490,000,000;  of  vehicles  for  land  transporta- 
tion, $1,000,000,000;  of  railroad  repair  shops,  $550,- 
000,000;  and  of  products  of  miscellaneous  industries, 
$1,750,000,000.2 


1  Abstract  of  the  Census  of  Manufactures,  1914,  p.  29. 
Appendix  I. 

2  A  more  detailed  statement  is  given  in  Appendix  I. 

20 


See 


DIVERSIFYING  AMERICAN  INDUSTRY 

One  important  effect  of  the  war  was  to  diversify  fur- 
ther the  already  complex  industrial  life  of  the  United 
States.    The  curtailment  and  final  stoppage  of  exports 
from  Central  Europe  compelled  the  United  States  to  erect 
or  extend  factories  to  produce  goods  that  had  been 
obtained  in  whole  or  in  part  from  belligerent  countries. 
The  blockade  of  Germany  established  by  the  British 
Navy  brought  forcibly  to  our  attention  the  fact  that  in 
the  case  of  a  number  of  essential  commodities  we  had 
in  this  country  neither  the  plant  nor  the  organized 
technical  skill  necessary  for  their   production.     The 
curtailment    of    production    in    some    lines    in    Great 
Britain  resulting  from  the  taking  over  of  industry  to 
supply  war  demands  had  a  similar  but  less  revolutionary 
effect  on  American  industry.    The  British  Government 
found  it  necessary  to  use  the  productive  capacity  of 
some  factories  for  the  products  of  which  the  United 
States  had  been  the  chief  market,  and  to  meet  this 
decline   in   foreign   supplies   American   manufacturers 
increased  their  production.     Shortage  of  shipping  was 
also  a  stimulus  to  the  increasing  diversification  of  Ameri- 
can industry.    There  was  a  tendency  to  produce  at  home 
those  products  which  the  uncertainties  and  the  scarcity 
of    ocean   shipping    made    it    increasingly    difficult   to 
obtain  from  abroad.    Prior  to  April,  1917,  the  absorption 
of  the  European  nations  in  the  great  struggle  left  their 
foreign  markets  unsupplied,  and  American  industries 
were  called  upon  to  supply  a  part  of  this  unsatisfied  de- 
mand.   The  tremendous  increase  of  export  trade  brought 
in  its  wake  a  corresponding  development  and  extension 
of  domestic  industry  and  commerce.    Finally,  there  came 
the  enormous  demand  for  war  supplies,  first  by  the 
Allies,  and  then,  after  April,  1917,  by  our  own  Govern- 
ment.    All  of  these  influences  brought  to  bear  on  Ameri- 

21 


COMMERCIAL  POLICY 

can  industries  by  the  war  were  constructive  in  effect. 
They  built  up,  they  extended,  they  diversified  our  in- 
dustrial life. 

Some  of  the  most  interesting  effects  of  the  war  were 
to  be  seen  in  industries  which,  if  judged  by  quantity  of 
output,  are  relatively  unimportant.  Yet  the  war  proved 
in  many  cases  that  the  existence  of  such  industries  in 
this  country  was  vital  to  our  military  security  and 
economic  prosperity.  The  industrial  effects  of  the  war 
may  be  shown  best  by  selecting  for  detailed  description  in 
this  and  the  following  chapter  a  few  of  the  industries 
in  which  the  changes  resulting  from  the  war  conditions 
were  most  striking  and  at  the  same  time  most  typical. 

At  the  time  of  the  outbreak  of  the  war  in  Europe,  the 
American  glass  industry  was  supplying  the  domestic 
market  with  a  large  proportion  of  its  window  glass,  bot- 
tles, lamp  chimneys,  and  pressed  glassware.  The  up-to- 
date  American  mills  were  equipped  with  excellent  auto- 
matic and  semi-automatic  glass-blowing  machinery.  We 
were  dependent  upon  Germany  and  Austria,  however, 
for  certain  special  but  very  important  glass  products. 
These  included  chemical  or  laboratory  glassware,  im- 
portant not  only  in  our  universities  but  also  in  the 
research  departments  of  many  of  our  great  industries, 
and  optical  glass  of  the  highest  grade,  used  for  lenses  of 
field  glasses,  range  finders,  and  periscopes.  Although 
these  products  were  made  to  some  extent  in  the  United 
States,  we  were  largely  dependent  on  foreign  countries 
for  our  supply. 

Laboratory  ware  includes  flasks  and  beakers;  grad- 
uated ware,  such  as  burettes  and  pipettes ;  apparatus  for 
testing;  extraction  apparatus  and  condensers;  sugar- 
testing  ware ;  reagent  bottles ;  and  ground  ware.    Some 

22 


DIVERSIFYING  AMERICAN  INDUSTRY 

of  these  products  are  required  by  many  of  our  important 
industries  in  their  research  work— -the  testing  of  pro- 
cesses and  the  analysis  of  materials  and  products. 
Laboratory  tests  and  analyses  are  essential  to  the  tech- 
nological processes  of  such  varied  industries  as  iron  and 
steel,  sugar,  fertilizers,  rubber,  cement,  soap,  oil  refining, 
textiles,  explosives,  dyes  and  other  chemicals. 

American  glass  manufacturers  were  called  upon  to 
supply  the  domestic  demand  for  chemical  and  scientific 
glassware.  The  war,  by  eliminating  foreign  competition, 
gave  them  a  free  field  for  development.  The  research 
and  experimental  work  done  in  Europe  and  made  public 
enabled  them  to  prepare  satisfactory  combinations  of 
materials.  The  United  States  Bureau  of  Standards 
cooperated  in  improving  the  quality  of  the  war  products. 
One  of  the  leading  manufacturers  of  American  chemical 
glassware  described  his  experience  thus  :* 

When  we  decided  to  go  into  this  Hne  we  employed  the  best 
chemists  we  could  find.  The  idea  was  to  get  quality,  so  that 
after  the  war  our  quality  would  be  known  and  we  would  have 
a  chance  to  sell  on  a  quality  basis.  We  experimented  and 
we  made  glass  which,  from  all  chemical  standpoints,  was 
superior  to  the  original  German  production.  The  ingredients 
and  the  way  they  are  mixed  are  probably  different.  It  is  a 
superiority  that  we  hope  will  continue  indefinitely,  because  the 
demand  in  this  country  has  been  for  a  better  quality.  The 
distinctive  requirement  is  for  quality,  glass  that  will  stand  the 

laboratory  tests. 

The  technical  problem  is  in  the  mixing  of  the  materials,  and 
it  requires  skill  in  the  manufacture  of  it.  We  had  trouble  in 
getting  skilled  labor  with  technical  experience.  It  took  us 
about  six  months  to  really  get  a  production  that  was  satis- 
factory. 

Optical  glass  is  used  for  the  lenses  of  field  glasses, 


3  United   States   Tariff   Commission,   ' '  Tho   Glass  Industry  as 
Affected  by  the  War  ''  (1918),  p.  16. 

23 


COMMERCIAL  POLICY 

range  finders,  periscopes,  and  other  optical  instruments. 
Its  production  was  perfected  in  Germany  after  careful 
experimentation  and  scientific  research.  The  best  known 
factory  in  this  line  is  the  Jena  Glass  Laboratory.  It 
began  in  1884  to  produce  optical  glass  in  commercial 
quantities.  Its  founders  were  aided  in  their  research 
by  liberal  subsidies  granted  by  the  Prussian  Government. 
During  the  year  ending  June  30,  1914,  the  United  States 
imported  rough-cut  and  unwrought  glass  for  optical  pur- 
poses valued  at  $617,700,  almost  one-half  of  which  came 
from  Germany  direct.  This  glass  was  ground  and 
polished  in  this  country.  During  the  same  year  the 
importation  of  lenses  and  optical  instruments  amounted 
in  value  to  $720,560. 

The  decline  in  imports  of  optical  glass,  owing  to  the 
blockade  of  the  British  Navy  and  also  to  the  com- 
mandeering for  war  purposes  of  the  relatively  small 
production  in  the  United  Kingdom  and  France,  stimu- 
lated production  in  this  country.  Optical  instruments 
are  a  vital  necessity  in  military  operations,  particularly 
for  artillery.  Unless  equipped  with  accurate  fire-control 
instruments,  modern  armies  cannot  operate.  The 
greatest  skill  and  technical  knowledge  are  required  to 
prepare  glass  that  will  pass  military  tests.  No  small 
task,  therefore,  confronted  the  American  manufacturers 
in  developing  this  new  branch  of  the  glass  industry. 
"With  the  assistance  of  the  Carnegie  Institution  of  Wash- 
ington and  the  Bureau  of  Standards  the  difficulties  were 
surmounted  and  excellent  optical  glass  was  produced  in 
quantities  sufficient  to  supply  our  military  needs.* 

Great  Britain,  like  the  United  States,  had  depended 
before  the  war  on  Germany  for  the  greater  part  of  her 
supply  of  optical  glass.    Early  in  the  war  her  military 


*  Ibid.,  p.  12. 


24 


DIVERSIFYING  AMERICAN  INDUSTRY 


operations  were  hindered  by  a  shortage.  The  report  of 
the  British  Committee  on  Commercial  and  Industrial 
Policy,  after  pointing  out  the  dependence  of  Great 
Britain  upon  Germany  for  optical  and  chemical  glass, 
continues  :* 

The  supremacy  of  the  German  manufacturers  was  due  not 
only  to  their  superior  scientific  knowledge  and  organisation, 
but  also  to  the  support  derived  from  tlie  steady  requirements 
of  a  large  standing  army.  Since  the  outbreak  of  war  it  has 
been  necessary  practically  to  create  the  industries  in  this 
country  from  the  foundation  and  the  efforts  made  with  Gov- 
ernment assistance  under  a  department  of  the  Ministry  of 
Munitions  specially  established  for  the  purpose  appear  already 
to  have  met  with  a  considerable  measure  of  success. 

The  main  lines  of  action  have  been  the  making  of  agreements 
by  the  Ministry  of  Munitions,  and,  where  necessary,  by  the 
War  Office,  Admiralty,  and  Ministry  of  Munitions  jointly, 
with  selected  firms,  under  which  in  return  for  Government 
financial  and  other  assistance  they  have  created  plants  to  pro- 
duce a  required  output  of  adequate  quality  and  variety  under 
specified  conditions,  the  fulfilment  of  which  is  supervised  by 
a  Government  representative  with  wide  powers,  including  the 
control  of  prices  and  methods  of  manufacture  and  the  enforce- 
ment of  a  fair- wage  clause  and  the  right  to  secure  the  training 
and  employment  of  female  and  unskilled  labour.  In  certain 
cases  such  agreements  have  been  made  for  a  period  of  10  years, 
and  provide  for  the  maintenance  of  a  specified  war  reserve  of 
the  material  manufactured  and  the  availability  of  the  plant 
for  Government  use  in  the  event  of  future  hostilities,  and  an. 
important  feature  is  an  undertaking  by  the  departments  con- 
cerned to  specify  in  purchasing  optical  instruments  that  they 
shall  be  fitted  with  British-made  glass.  In  other  cases  ad- 
vances or  other  arrangements  have  been  made  for  the  erection 
of  buildings  and  the  supply  of  modern  machinery.  Scientific 
assistance  in  solving  numerous  problems  has  been  given  by  the 
Ministry  of  Munitions,  and  by  numerous  and  eminent  scientific 
men  and  institutions  through  the  Ministry.     .     .     . 


5  British  Blue  Book,  Cd.  9032  (1918),  p.  7. 

25 


COMMERCIAL  POLICY 

We  are  satisfied  that  the  continuance  of  commercial  and 
scientific  assistance  and  of  detailed  control  on  the  lines  already 
followed  will  be  necessary  for  a  considerable  period.  This 
necessity  is,  we  believe,  fully  admitted  by  the  manufacturers 
themselves,  who  recognise  also  that  such  assistance  must  have 
aa  its  object  and  condition  the  attainment  and  maintenance  of 
the  highest  standards  of  quality. 

It  is  clear,  moreover,  that,  in  order  that  the  industries  may 
have  time  and  opportui^ity  to  adapt  their  organisation  to  peace 
conditions  and  to  train  an  adequate  supply  of  skilled  workers, 
very  special  measures  of  protection  against  foreign  competi- 
tion will  be  required  at  the  outset,  in  view  particularly  of  the 
great  strength  and  reputation  of  the  German  firms.  Having 
regard  to  the  peculiar  circumstances  of  the  industries  in  ques- 
tion, we  think  that  these  measures  will  be  regulated  most 
effectively  by  means  of  the  prohibition  of  imports  from  what- 
ever source,  except  under  license,  of  certain  kinds  of  glass  and 
optical  instruments  to  be  specified  from  time  to  time  by  the 
organisation  referred  to  in  the  following  paragraph. 

America  at  one  time  had  a  good  sized  surgical-instru- 
ment industry,  but  about  1900  the  Germans  began  to 
win  the  American  market  from  our  manufacturers. 
Their  competition  just  before  the  war  was  being  felt 
keenly  even  in  the  few  lines  in  which  we  had  for  many 
years  retained  the  advantage.  In  1914  from  75  to  90 
per  cent,  of  our  domestic  consumption  of  instruments 
was  being  imported,  and  American  production  was  con- 
fined to  instruments  of  brass,  copper,  and  other  non- 
ferrous  metals,  to  large  iron  instruments,  such  as  veteri- 
nary tools,  to  hypodermic  needles,  and  to  the  filling  of 
special  orders.  Germany's  position  had  resulted  from 
well  organized  large-scale  production,  highly  skilled 
laborers,  relatively  low  labor  cost,  efficiency  in  selling, 
and  a  good  supply  of  raw  materials. 

The  curtailment  of  imports  from  Germany  in  1914 
created  a  shortage  of  steel  instruments  in  the  United 

26 


I 


DIVERSIFYING  AMERICAN  INDUSTRY 


States  and  stimulated  domestic  production.  Our  indus- 
try expanded  rapidly.  By  1917  the  output  of  soft-metal 
goods  had  doubled,  and  the  increase  in  the  production 
of  steel  instruments  was  between  200  and  300  per  cent. 

An  added  stimulus  came  to  the  surgical-instrument 
industry  when  the  United  States  entered  the  war.  The 
Army  and  Navy  had  to  be  supplied.  The  result  was, 
of  course,  a  tremendous  increase  in  output,  biit  a  more 
significant  and  important  development  was  a  change  in 
the  processes  of  making  the  instruments.  Before  the 
war,  on  account  of  the  great  variety  of  types  and  pat- 
terns called  for  by  American  surgeons  and  on  account 
of  the  limited  demand,  instruments  were  made  largely 
by  hand.  The  war  brought  a  change  destined  to  be 
permanent.  Standardization  was  promoted  by  the 
restriction  of  essential  instruments  to  a  list  of  about  800, 
drawn  up  by  the  Council  of  National  Defense.  The 
industry  installed  automatic  machinery  and  labor-saving 
devices  such  as  drop  forges.  Small-scale  production  and 
hand  labor  gave  way  to  large-scale  mass  production  and 
machine  methods.  The  industry  was  adapted,  to  a  large 
extent,  to  the  typical  American  industrial  technique. 

The  abnormal  demand  both  for  military  and  civilian 
uses  and  the  resulting  rise  in  prices  brought  an  addi- 
tional factor  of  great  importance  into  the  situation. 
Importations  from  Japan  began  in  the  fall  of  1916. 
Orders  were  placed  in  Japan  for  instruments  which  were 
copied  from  American  models.  The  American  demand 
stimulated  and  fostered  the  development  of  the  Japanese 
industry.  At  first  the  lack  of  skilled  workmen,  tools, 
and  materials  resulted  in  an  inferior  product,  but  the 
quality  improved  and  the  prices  remained  surprisingly 
low.  "We  have  here  a  good  example  of  the  far-reaching 
effect  of  the  war.    The  removal  of  Germany  as  a  com- 

27 


,  I 


COMMERCIAL  POLICY 

petitor  stimulated  the  development  of  the  surgical- 
instrument  industry  in  the  United  States  but  it  also 
stimulated  the  growth  of  the  new  industry  in  Japan. 
When  Germany  again  becomes  a  competitor,  we  shall 
have  a  complex  situation  to  deal  with. 

Germany  was  the  chief  competitor  of  this  country 
before  the  war  in  the  knit-goods  industry.  Not  only  did 
she  share  our  markets  in  almost  all  lines  with  the  domes- 
tic manufacturer,  but  in  the  case  of  at  least  one  line, 
that  of  sueded  cotton  gloves,  she  was  in  complete  control. 
Though  the  cheaper  cotton  gloves  were  made  extensively 
in  this  country,  there  was  practically  no  production  of 
sueded  or  * '  chamoisette '  *  gloves. 

These  gloves  are  made  from  a  fabric  which  is  produced 
by  a  very  special  process.  The  Germans  had  mastered 
this  process  and  were  making  a  closely  knit  product, 
with  a  velvety  finish,  closely  resembling  chamois.  Over 
a  million  dozen  pairs  of  sueded  gloves  were  imported 
into  this  country  annually  before  the  war.  The  Ger- 
man goods  ceased  coming  in  1916.  At  the  same  time 
the  demand  here  increased  owing  to  the  increased  price 
of  leather  gloves.  American  manufacturers,  most  of 
whom  had  been  manufacturing  silk  or  leather  gloves, 
lingerie,  or  other  kinds  of  women's  apparel,  then  under- 
took the  making  of  sueded  gloves.  In  1918  they  made 
1,300,000  dozen  pairs,  or  more  than  the  pre-war  importa- 
tion. The  American  product  is  not  so  velvety  as  the 
German,  but  it  is  more  elastic  and  less  baggy. 

Recently  the  Japanese,  who  began  to  make  cotton 
gloves  in  1914,  have  been  making  sueded  gloves,  and 
their  competition,  as  well  as  that  of  the  Germans,  is  to 
be  considered  after  normal  conditions  are  restored.  Just 
how  severe  and  how  destructive  competition  will  be,  it  is 

28 


DIVERSIFYING  AMERICAN  INDUSTRY 

impossible  to  forecast.  German  costs  will  doubtless  differ 
greatly  from  those  prevailing  before  the  war.  The 
Japanese  industry  is  new,  and  little  is  known  of  costs 
in  Japan.  Since  the  outbreak  of  the  war,  the  British 
also  developed  the  manufacture  of  sueded  cloth  both  for 
glove  making  and  for  other  purposes,  and  in  export 
markets  their  products  have  already  entered  into  com- 
petition with  the  Japanese  product.  But  American 
manufacturers  are  paying  particular  attention  to  quality, 
style,  and  pattern,  and  may  be  able  to  hold  their  ground 
even  against  lower-priced  importations. 

Venetians,'  a  cotton  fabric  used  extensively  for  the 
lining  of  cloaks  and  coats,  for  making  bathing  suits,  and 
for  similar  purposes,  illustrate  still  another  influence  of 
the  war  on  American  industry.  During  the  last  few 
years  they  have  constituted  the  largest  single  line  of 
cotton  cloth  imported.  Before  the  war  fully  90  per 
cent,  of  all  the  Venetians  used  in  the  United  States  was 
made  in  the  Bradford  district  of  England,  where  par- 
ticularly the  finishing  of  these  fabrics  had  reached  a 
high  state  of  perfection. 

The  war  hampered  and  restricted  the  production  of 
Venetians  in  Great  Britain,  and  the  English  mills  were 
not  able  to  supply  the  full  needs  of  the  growing  Ameri- 
can market  without  considerable  advances  in  price. 
American  manufacturers  were  stimulated  to  increased 
production  to  meet  the  increased  demand,  and  in  1917-18 
they  were  supplying  probably  one-half  of  our  domestic 
needs.  Because  of  the  rising  costs  in  Great  Britain, 
they  were  able*  during  the  war  to  undersell  the  English 
product ;  but  with  the  removal  of  the  added  protection 

•  United   States   Tariff   Commission,   *'  The   Import   and   Pro- 
duction of  Cotton  Venetians  "  (1919). 

29 


ii 


COMMERCIAL  POLICY 

afforded  by  the  difficulties  that  hampered  the  Bradford 
producers,  by  the  enhanced  transportation  costs,  and  by 
the  increased  burden  of  ad  valorem  tariff  duties  based 
on  inflated  prices,  when  international  competition  re- 
sumes its  normal  course,  the  American  industry  may 
have  difficulty  in  holding  unaided  even  that  share  of  the 
American  market  that  it  now  supplies. 

Restrictions  on  shipping^  have  had  in  some  cases 
effects  on  industry  similar  to  those  of  the  curtailment 
of  imports  by  the  blockade  of  the  Central  Powers.  The 
effects  that  these  restrictions  had  on  the  supply  of  raw 
materials  and  the  development  of  substitutes  therefor 
are  important  and  interesting,*  but  we  are  concerned 
here  mainly  with  the  development  of  new  processes  for 
making  in  the  United  States  finished  products  that  were 
formerly  imported. 

One  of  the  most  interesting  results  of  the  operation 
of  this  influence  is  presented  in  the  case  of  camphor. 
Natural  camphor  is  a  product  of  a  large,  evergreen  tree 
which  is  indigenous  to  Japan  proper,  Formosa,  a 
Japanese  possession,  and  China.  Japan's  position  in 
the^  camphor  trade  can  fairly  be  described  as  monopo- 
listic. Some  camphor  is  supplied  by  China,  the  Dutch 
East  Indies,  and  Florida,  but  not  in  sufficient  quantity 
to  have  an  important  effect  on  the  market.  Formosa, 
the  most  important  single  source  of  supply,  became 
Japanese  territory  at  the  close  of  the  China-Japanese 
war.  In  1899  the  Japanese  Government  took  over  the 
Formosa    camphor    industry,    and    introduced    radical 

7  The  occasion  and  nature  of  these  import  restrictions  are  fully 
described,  in  this  series,  in  Louis  E.  Van  Norman,  War  Time  Con- 
trol of  Commerce. 

8  For  a  detailed  account  of  these  effects  on  the  mineral  industry 
see,  m  this  series,  George  Otis  Smith,  The  Strategy  of  Minerals, 

30 


DIVERSIFYING  AMERICAN  INDUSTRY 

reforms  in  the  trade.  In  1903  the  scope  of  the  Govern- 
ment monopoly  was  extended  to  Japan  itself.  The 
Government  licenses  producers  of  camphor  and  camphor 
oil,  and  purchases  all  their  product  at  a  fixed  price. 
About  70  per  cent,  of  the  world's  supply  of  camphor 
is  used  in  the  manufacture  of  pyroxylin  plastics,  an 
industry  which  has  grown  rapidly  in  recent  years,  par- 
ticularly in  America. 

Camphor  can  be  produced  synthetically,  that  is,  by 
chemical  combination  of  other  materials.  This  artificial 
product  has  exactly  the  same  characteristics  as  natural 
camphor  except  that  it  is  what  is  called  optically  inac- 
tive. Numerous  researches  have  been  made  to  perfect 
the  processes  for  making  synthetic  camphor.  Oil  of 
turpentine  is  the  basic  raw  material  used. 

So  far  as  is  known,  the  only  plant  producing  synthetic 
camphor  on  a  commercial  scale  in  the  United  States  is 
the  one  established  since  the  outbreak  of  the  war  near 
Wilmington,  Delaware,  by  E.  I.  duPont  de  Nemours  and 
Company.  The  plant  of  this  Company  has  a  capacity 
of  3,000  pounds  per  day.  The  construction  of  an 
addition  to  it  which  will  double  that  capacity  has  been 
authorized. 

The  war  has  thus  demonstrated  that  industries  small 
in  the  amount  of  their  output  may  be  vital  to  the  nation. 
Letting  industry  alone  or  merely  protecting  it  by  import 
duties  against  foreign  competition  does  not  necessarily 
result  in  the  development  of  the  sort  of  industrial  life 
most  desirable  from  a  national  standpoint.  Before  the 
war  it  was  thought  by  some  a  sufficient  answer  to  say 
that  we  could  not  compete  with  Germany  in  high-grade 
glassware  and  surgical  instruments.  That  is  no  longer 
a  sufficient  answer.    We  must  go  a  step  further  and  ask 

31 


COMMERCIAL  POLICY 


how  essential  the  domestic  production  of  this  and  other 
products  are  to  our  national  life.  Other  industries  not 
to  be  classed  as  essential,  such  as  Venetians  and  sueded 
gloves,  may  be  entitled  to  consideration  from  the  Govern- 
ment  that  will  enable  them  to  compete  on  equal  terms 
with  foreign  rivals.  The  diversification  of  the  industrial 
life  of  a  nation  is  desirable,  and  it  may  be  wise  public 
policy  to  protect  industries  that  develop  the  natural  and 
human  resources  of  the  nation  even  though  there  may 
be,  temporarily,  a  slight  economic  sacrifice. 

Not  the  least  interesting,  because  an  unexpected, 
result  of  the  war  was  the  direction  of  public  attention 
to  the  pre-war  control  by  Germany  of  a  number  of 
important  industries  and  to  the  development  under  war 
conditions  by  other  countries  of  competition  therein. 
Some  cases,  which  have  been  discussed  in  this  chapter, 
illustrate  this  point,  but  even  more  conspicuous,  interest- 
ing, and  important  from  the  standpoint  of  national 
policy  are  cases  in  the  chemical  industry  to  which  we 
now  turn. 


CHAPTER  III 


THE  CHEMICAL  INDUSTRIES  :  I,   UNDER  BLOCKADE  AND 

EMBARGO 

Curtailment  of  imports  of  chemical  products  from  Central  Europe 
—  The  situation  in  the  dye  industry  in  1914  — Effect  of  the 
shortage  of  dyes  on  American  textile  mills  — Growth  of  the 
American  dye  industry  —  Tariff  m  intermediates  and  dyes  — 
Effect  of  America's  entrance  into  the  war  in  April,  1917  on 
the  dye  industry  —  Germany 's  natural  advantage  in  potash  — 
Growth  and  nature  of  the  American  potash  industry  —  Potash 
beds  in  Alsace  —  Germany 's  pre-war  control  of  thorium 
nitrate  — Its  production  in  the  United  States  —  Undesirabil- 
ity  o±  dependence  upon  one  nation  for  suppUes  of  essentials. 

Germany  in  1914  held  undoubted  supremacy  in  many 
branches  of  the  chemical  industry,  particularly  those 
requiring  scientific  knowledge  and  technical  skill.     In 
the  production  of  some  chemical  products  her  position 
may  fairly  be  described  as  monopolistic.    The  importance 
to  her  of  this  advantage  was  increased  by  the  fact  that 
chemicals   are  frequently  the   raw  materials   of   other 
industries.    By  controlling  these  chemical  products  Ger- 
many actually  or  potentially  controlled  in  some  degree 
industrial  activities  in  other  countries.    Before  the  war 
consumers  in  the  United  States  found  it  profitable  to 
purchase  the  German  product  Jiecause  it  was  reasonable 
as  to  price  and  of  high  quality.    In  some  cases  there  was 
no  alternative  source  of  supply,  even  if  quality  and  price 
were  not  altogether  satisfactory.     The  national  signifi- 
cance of  our  dependence  upon  Germany  for  essential 
products  was  not  appreciated,  even  if  known,  by  the 
public. 

The  effect  of  the  war  on  the  chemical  industry  due 

33 


COMMERCIAL  POLICY 

to  the  curtailment  of  imports  from  Germany  should  be 
distinguished  from  that  due  to  the  demand  for  war  sup- 
plies which  will  be  considered  in  the  following  chapter. 
Before  the  United  States  entered  the  w^ar,  permanent 
changes  had  come  about  in  the  American  chemical  indus- 
try as  a  direct  result  of  the  German  embargo  and  the 
British  blockade.  The  isolation  of  Germany  brought  our 
dependence  upon  her  for  essential  products  dramatically 
to  America 's  attention.  In  some  industries,  for  example, 
the  textile  industries,  there  resulted  what  were  almost 
panic  conditions.  To  American  business  men  and 
chemists  was  given  an  opportunity  to  demonstrate  what 
their  resourcefulness  could  accomplish  in  an  emergency. 
The  curtailment  of  imports  from  Germany  taught  us 
more  about  the  interrelationship  of  industry  than  we 
could  have  learned  in  years  of  normal  conditions.  The 
shutting  off  of  German  supplies  has  led  to  the  establish- 
ment in  the  United  States  of  industries  which  w^ill  be 
permanent  and  which  wuU  end  the  monopoly  formerly 
enjoyed  b}^  Germany  in  some  lines.  The  characteristic 
effect  of  the  war  conditions  was  most  strikingly  evident 
in  industries  producing  coal-tar  dyes,  potash,  and 
thorium  nitrate,  and  these  three,  therefore,  will  be  con- 
sidered in  some  detail. 

When  war  came  upon  the  world  in  1914,  Germany  was 
producing  approximately  three-fourths  of  the  world's 
supply  of  coal-tar  dyes.^  Even  this,  however,  does  not 
indicate  the  full  measure  of  the  world's  dependence 
upon  Germany.  Dyes  are  made  from  intermediates, 
which  in  turn  are  made  from  crude  coal-tar  products. 
The  making   of   these  products,   and   particularly   the 

1  The  world's  production  of  coal-tar  dyes  in  1914  was  as  follows 
(Department  of  Commerce,  Special  Agent  Series  No.  96,  p.  30)  : 

34 


CHEMICAL  INDUSTRIES 

manufacture   of  tJie   intermediates,   involves  in  many 
cases  technical  knowledge  of  the  highest  order.    Secrecy 
and  protection  through  patents  of  the  processes  elabor- 
ated by  German  chemists  after  many  years  of  intensive 
and   painstaking   research  made  competition   difficult. 
The  intermediates  were  the  keystone  of  Germany's  dye 
monopoly.    Through  the  dye  combines  Germany  directly 
controlled  one-half  of  the  dye  production  in  foreign 
countries  and  was  in  a  position  to  threaten  the  remainder. 
Germany,  to  a  large  extent,  owned  and  operated  the  dye 
factories  in  Great  Britain  and  France.      In  America 
coal-tar  colors  valued  altogether  at  $2,470,096  were  pro- 
duced  in    1914  by  seven   establishments.^    But   these 
establishments  were  almost  entirely  dependent  upon  Ger- 
many for  intermediates  and  one  was  owned  by  a  leading 
German  dye  firm.     It  is  true  that  since  1910  one  firm 
had  provided  a  small  part  of  the  domestic  consumption 
of  nitrobenzol  and  anilin  and  that  several  other  inter- 
Germany $68,300,000 

Switzerland    q  450  oOO 

Great  Britain 6;000,'000 

f/^r!  qV  : 5,000,000 

United  States 3,000,000 

t^^stfia  1,500,000 

S"f  ?^   1,000,000 

J/lf™    • 500,000 

Netherlands   200,000 

Other  countries 2OO  000 

$92,150,000 

2  The  coal-tar  dye  industry  in  the  United  States  as  reported  in 
the  census  of  1914 :  i        ^^    x* 

Number  of  establishments 7 

Persons  engaged  in  manufacture .. .  528 

Wage  earners  (average  number) 393 

Value  of  products. $3,596,795 

Coal-tar  colors: 

founds    6,619,729 

Ai7  .u®  ••  •  • $2,470,096 

All  other,  value $1,126,699 

35 


COMMERCIAL  POLICY 

mediates  were  produced  in  this  country  in  small  quanti- 
ties. But  these  instances  only  tended  to  emphasize  our 
lack  of  self-sufficiency.  During  the  fiscal  year  ending 
June  30,  1914,  we  imported  over  10,000,000  pounds  of 

intermediates. 

As  is  well  known,  the  organization  of  cartels  was 
encouraged  by  the  German  Government  and  became  a 
leading  factor  in  the  advance  of  German  industry.    It 
was  particularly  effective  in  the  chemical  industries. 
Because  of  the  interrelation  of  products  and  the  utiliza- 
tion of  by-products,  close  organization  effected  large 
economies.     It  made  the  protection  of  patent  rights 
easier,  it  made  it  possible  to  purchase  raw  materials 
at  greater  advantage,  and  it  enabled  the  industries  more 
effectively  to  meet  and  to  suppress  competition  abroad. 
Unquestionably,  a  large  part  of  the  success  of  the  Ger- 
man dye  industry  was  attained  through  the  painstaking 
research  of  German  chemists  and  the  processes  which 
they  discovered  and  patented  by  the  thousand.     But 
financial  control  and  business   organization  were  also 
large  factors  in  its  supremacy.    Before  the  war  it  was 
controlled   by  two   communities   of   interests,   the   one 
known  as  the  Badische  group,  the  other  as  the  Hochst- 
Cassella  group.     The  dividends  of  four  of  the  large 
German  dye  concerns  from  1902  to  1911  ranged,  it  is 
reported,   from   196   to   300  per   cent.     This   financial 
strength  must  be  kept  in  mind  when  we  are  considering 
the  competition  that  our  industries  will  be  called  upon 

to  face 

The  dye  industry  is  not  large  and  its  importance  was 
not  realized  until  the  war  brought  our  dependence  upon 
Germany  forcefully  to  the  attention  of  the  textile  manu- 
facturers and  other  consumers.  Color  is  often  the 
determining  factor  in  the  saleability  of  goods.    Ink  and 

36 


CHEMICAL  INDUSTRIES 

lithographic  industries  must  have  it.  It  is  necessary  not 
only  in  cotton,  woolen,  and  silk  fabrics,  but  in  printing 
and  in  the  manufacture  of  leather  goods,  fancy  paper, 
straw  hats,  and  paints. 

Very  few  textile  materials  are  sold  undyed.  If  dyes 
•vere  not  available  for  a  considerable  period  of  time,  the 
manufacturers  would  be  compelled  to  offer  for  sale  white 
or  grey  goods.  But  for  clothing  purposes  this  w^ould  not 
meet  the  demand  of  the  public,  as  purchasers  would 
postpone  buying  as  long  as  possible.  In  the  meantime 
the  textile  industries  and  those  dependent  upon  them 
would  suffer. 

By  March,  1915,  the  Allied  blockade  had  completely 
stopped  exports  from  Germany  and  the  conditions  in 
our  textile  mills  became  serious.  Economies  were  intro- 
duced. The  world  was  searched  for  reserve  supplies  of 
coal-tar  dyes.  Light  shades  became  common  in  many 
lines  of  goods.  Designs  were  changed,  especially  in 
calicos  and  ginghams.  Small  figures  were  printed  on 
white  backgrounds.  Natural  dyes,  such  as  logwood  and 
fustic,  came  into  more  common  use.  Artificial  or  syn- 
thetic indigo,  of  which  we  used  about  8,000,000  pounds 
a  year  and  which  was  almost  entirely  supplied  by  Ger- 
many, was  supplied  in  limited  quantities  and  at  greatly 
enhanced  prices  during  the  latter  part  of  1915  and  the 
first  part  of  1916  from  the  reserve  stocks  of  Oriental 
and  other  countries.  China  furnished  3,400,000  pounds ; 
Japan,  Hongkong,  and  British  India,  1,370,000  pounds ; 
Great  Britain, '  1,300,000  pounds;  and  even  Salvador, 
85,000  pounds.  To  a  more  limited  extent  resort  was  had 
once  more  to  the  more  expensive  and  scarce  natural 
product.  American  consumers  thus  obtained  approxi- 
mately 80  per  cent,  of  their  normal  supply  of  indigo. 
They  did  not  have,  however,  the  same  measure  of  success 

37 


COMMERCIAL  POLICY 

in  other  dyes.  During  the  fiscal  year  ending  June  30, 
1916,  for  example,  instead  of  the  normal  supply  of 
alizarin,  which  averaged  5,500,000  pounds,  we  imported 
1,758  pounds.  Imports  of  dyes  were  far  below  normal, 
and  such  as  were  brought  to  this  country  came  from 
Switzerland  and  from  reserve  stocks  of  German  dyes 
in  China. 

In  the  meantime  the  American  dye  industry  was 
growing.  Old  plants  had  enlarged  their  capacity,  new 
ones  w^ere  erected.  American  business  energy  and 
chemical  skill  by  the  fall  of  1916  had  banished  the  spectre 
of  a  dye  famine  which  had  haunted  the  consumer  for 
more  than  a  year.  This  does  not  mean,  however,  that 
all  our  needs  were  being  supplied.  The  new  dye  indus- 
try sought  the  lines  of  least  resistance.  It  concentrated 
its  energy  on  producing  a  large  output  of  the  less  com- 
plex dyes.  Many  important  dyes,  such  as  alizarin  and 
the  fast  vat  dyes  for  cotton,  were  neglected.  Some  of 
them  were  protected  by  German  patents,  and  this  coun- 
try, being  at  that  time  still  a  neutral,  could  not  issue 
licenses  to  manufacture  under  these  patents  as  Great 
Britain  had  already  done.  There  was  also  the  difficulty 
of  getting  the  necessary  raw  materials  for  making  some 
of  the  more  difficult  dyes. 

Within  an  incredibly  short  time  after  we  were  cut 
off  from  the  German  supply,  we  had  invested  huge  sums 
in  plants  for  making  crudes,  intermediates,  and  finished 
dyes.  We  were  producing  dyes  quantitatively  equal  to 
our  pre-war  consumption.  Our  exports  of  dyestuffs 
exceeded  in  value  our  pre-war  annual  imports.  We  did 
not  yet  make  a  few  such  highly  manufactured  lines  as 
the  alizarins  and  indanthrenes,  and  we  produced  only  a 
fraction  of  our  requirements  of  indigo,  but  in  most  lines 
of  large  consumption  we  were  able  to  meet  all  demands. 

38 


'  I 


► 


• 


CHEMICAL  INDUSTRIES 

We  may  justly  be  proud  of  our  achievement  in  this 
field.  When  it  is  recalled  that  more  than  900  distinct 
chemical  products  are  made  from  some  300  intermediates, 
which  themselves  must  first  be  chemically  produced 
from  10  crude  products  distilled  from  coal  tar,  the  vast- 
ness  of  the  problem  set  before  this  youngest  of  our 
industries  is  apparent.  The  rapidity  of  its  progress  has 
amazed  the  world. 

In  a  law  of  September  8,  1916,  Congress  has  said  in 
effect  that  the  tariff  is  to  be  one  of  the  means  of  prevent- 
ing any  attempts  by  a  foreign  competitor  to  destroy  the 
new  American  dyestuffs  industry.  In  revising  the  tariff 
law  of  1913  to  provide  additional  protection  for  the 
growing  industry,  the  plan  was  carried  out,  with  a  few 
exceptions,  of  raising  the  duty  on  intermediates  from 
10  per  cent,  ad  valorem  to  15  per  cent,  ad  valorem  plus 
a  special  duty  of  2i/^  cents  per  pound,  and  on  finished 
dyes  from  either  the  free  list  to  30  per  cent,  ad  valorem 
or  from  30  per  cent',  ad  valorem  to  30  per  cent,  plus  ^\e 
cents  per  pound.  The  duty  of  2^/^  cents  per  pound  on 
intermediates  and  the  duty  of  five  cents  per  pound  on 
dyes  are  referred  to  as  ** special  duties,''  and  after  ^\q 
years  they  are  either  to  be  abolished  or  reduced  gradually 
over  a  subsequent  period  of  five  years. 

Unfair  competition  was  one  of  the  methods  employed 
by  the  German  coal-tar  dye  industry  to  maintain  its 
international  supremacy.  Unfair  acts  in  this  and  other 
lines  were  no  doubt  in  the  minds  of  the  members  of 
Congress  when  they  enacted  the  unfair-competition  sec- 
tion of  the  law  of  September  8,  1916.  By  this  law  it  is  a 
criminal  act  systematically  to  import  any  article  into  the 
United  States  at  a  price  substantially  less  than  the  actual 
market  value  abroad,  plus  freight,  duty,  and  other 
charges,  with  the  intention  of  destroying,  injuring,  or 

39 


Y 


COMMERCIAL  POLICY 

preventing  the  establishment  of  an  industry  in  the 
United  States  or  of  restraining  or  monopolizing  the  trade 
in  the  imported  article.  More  will  be  said  about  this 
law  in  a  later  chapter.^ 

In  addition  to  this  prohibition  of  unfair  price  cutting, 
the  law  makes  provision  against  the  practice  known  as 
** full-line  forcing/'  Articles  will  be  required  to  pay  a 
double  duty  when  imported  into  this  country  under  an 
agreement  that  the  purchaser  shall  not  use,  buy,  or  deal 
in,  or  shall  be  restricted  in  his  using,  purchasing,  or 
dealing  in,  the  articles  of  any  other  person.  If,  for 
example,  the  German  dye  industry  controls  by  patent 
a  color  needed  in  this  country,  it  cannot  use  the  necessity 
of  the  American  consumer  as  a  means  of  forcing  him 
to  purchase  his  full  line  of  dj^es  from  abroad  when  all 
the  colors  except  the  one  controlled  by  the  patent  can  be 
purchased  in  this  country. 

Tariff  laws  and  legislation  against  unfair  trade  prac- 
tices wull  not  alone  protect  our  dye  industries.  The 
German  industry  attained  success  by  years  of  research, 
by  conservative  financing,  and  by  industrial  coordina- 
tion. In  American  industry  too  these  must  be  important, 
in  fact,  dominant,  factors. 

The  fall  of  1916  was  important  for  the  dye  industry 
not  only  because  it  brought  the  enactment  of  increased 
tariff  rates,  but  because  the  emergency  needs  had  in 
large  measure  been  met.  Manufacturers  were  able, 
therefore,  to  devote  more  attention  to  technical  detail, 
to  the  improvement  of  quality,  and  to  the  achievement 
of  uniformity  of  product.  The  larger  factories  estab- 
lished research  laboratories  and  enlisted  the  services  of 
expert  chemists.  This  is  a  most  significant  step,  for  if 
the  American  industry  is  to  hold  its  own  against  its 


) 


3  See  Chapter  VIII. 


40 


CHEMICAL  INDUSTRIES 

foreign  competitors,  it  must  improve  its  processes,  reduce 
its  costs,  and  develop  new  types  of  dyes.  Some  progress 
has  been  made  in  these  directions,  but  much  yet  remains 
to  be  done. 

The  entrance  of  the  United  States  into  the  war  affected 
the  dye  industry  in  a  new  way.  Because  of  its  close 
relationship  to  the  explosives  industry,  it  found  difficulty 
in  obtaining  many  essential  raw  materials  that  were 
demanded  in  large  quantities  for  the  making  of 
explosives  and  airplanes.  Toluol,  acetic  acid,  wood 
alcohol,  chlorine,  caustic  soda,  and  ammonia  were  com- 
mandeered by  the  Government.  Toluol  is  an  essential 
raw  material  for  many  dyes.  Acetic  acid  is  essential 
in  the  manufacture  of  indigo.  Chlorine  and  ammonia 
are  also  used  extensively  in  the  making,  of  important 
dyes. 

Our  entrance  into  the  war  naturally  created  an  abnor- 
mal demand  for  the  khaki  colors  and  a  corresponding 
decline  in  the  demand  for  the  great  variety  of  colors  used 
for  civilian  clothing.  This  influence  has  tended  to  limit 
the  development  of  the  dye  industry  in  directions  which 
are  essential  to  its  permanence. 

Our  entrance  into  the  war  as  a  belligerent,  however, 
was  not  wholly  unfavorable  in  its  influence  on  the  dye 
industry.  The  Trading-with-the-Enemy  Act,*  enacted  on 
October  6,  1917,  authorized  the  issuance  of  licenses  to 
manufacture  under  patents  owned  by  enemy  aliens. 
The  Federal  Trade  Commission,  in  administering  this 
provision,  issued  licenses  to  several  companies  for  the 
manufacturing  of  the  vat  dyes  for  cotton.  In  March, 
1919,  this  plan  of  handling  German  dye  patents  was 


4  For  a  detailed  account  of  the  administration  of  this  measure 
see,  in  this  series,  Louis  E.  Van  Norman,  War  Time  Control  of 
Commerce. 

41 


COMMERCIAL  POLICY 

superseded  by  the  action  of  the  Alien  Property  Custo- 
dian. These  patents  came  under  his  control  as  ' '  enemy 
property,"  and  he  sold  them  to  a  corporation  formed 
under  his  guidance  and  known  as  the  Chemical  Founda- 
tion, Inc.  In  announcing  this  new  departure,  the  Alien 
Property  Custodian 's  report  says : 

The  amendment  of  November  4  to  the  Trading-with-the- 
Enemy  Act  presented  for  the  first  time  an  opportunity  for 
what  appears  to  be  the  most  important  piece  of  constructive 
work  which  has  been  possible  in  my  department.  Until  the 
enactment  of  this  amendment  it  had  not  been  possible  to  take 
over  German  patents.  These  patents  formed  an  obstacle  to 
the  development  of  the  American  dyestuff  industry.  Evidently 
they  had  not  been  taken  out  with  any  intention  of  manufactur- 
ing in  this  country  or  from  any  fear  of  American  manufacture, 
which  the  Germans  apparently  thought  could  not  be  success- 
fully carried  on  under  conditions  prevailing  in  this  country  in 
regard  to  costs  and  the  supply  of  technicians  and  skilled  labor. 

Upon  consideration,  however,  it  seemed  that  these  patents 
offered  a  possible  solution  for  the  problem,  hitherto  unsolvable, 
of  protecting  the  new  American  dye  industry  against  German 
competition  after  the  war.  If  they  were  not  taken  out  in 
order  to  prevent  American  competition,  they  must  have  been 
obtained  as  a  weapon  against  competing  imports.  If  they 
were  sufficient  to  stop  importation  of  competing  Swiss,  French, 
and  English  dyes,  they  would  presumably  serve,  in  American 
hands,  to  stop  importation  of  German  dyes.  This  was  par- 
ticularly probable  in  the  case  of  the  products  patents,  since 
most  of  the  coal-tar  dyestuffs  are  definite  chemicals,  to  which 
a  product  patent  is  entirely  applicable. 

The  idea  was  accordingly  conceived  that  if  the  German 
chemical  patents  could  be  placed  in  the  hands  of  any  American 
institution  strong  enough  to  protect  them,  a  real  obstacle  might 
be  opposed  to  German  importation  after  the  war,  and  at  the 
same  time  the  American  industry  might  be  freed  from  the 
prohibition  enforced  by  the  patents  against  the  manufacture 
of  the  most  valuable  dyestuffs.  Accordingly,  these  considera- 
tions were  laid  before  various  associations  of  chemical  manu- 

42 


^ 


CHEMICAL  INDUSTRIES 

facturers,  notably  the  Dye  Institute  and  the  American  Manu- 
facturing Chemists*  Association.  The  suggestion  was  met 
with  enthusiastic  approval,  and  as  a  result  a  corporation  has 
been  organized,  to  be  known  as  the  Chemical  Foundation,  Inc., 
in  which  practically  every  important  American  manufacturer 
will  be  a  stockholder,  the  purpose  of  which  is  to  acquire  by 
purchase  these  German  patents  and  to  hold  them,  as  a  trustee 
for  American  industry,  "  for  the  Americanization  of  such  in- 
stitutions as  may  be  affected  thereby,  for  the  exclusion  or 
elimination  of  alien  interests  hostile  or  detrimental  to  the  said 
industries  and  for  the  advancement  of  chemical  and  allied 
science  and  industry  in  the  United  States." 

Export  statistics  show  in  a  striking  way  the  progress 
of  the  American  dye  industry.  During  the  fiscal  year 
1916  the  exports  were  valued  at  a  little  over  $5,000,000. 
In  1917  they  had  increased  to  over  $11,500,000,  and  in 
1918  they  were  almost  $17,000,000.  The  significance  of 
these  figures  can  be  realized  only  when  it  is  recalled  that 
the  American  dye  industry  can  hardly  be  said  to  have 
existed  in  1914,  and  that  it  is  now  not  only  supplying 
a  large  percentage  of  the  American  demand  for  dyes, 
but  is  exporting  this  substantial  sum  to  other  countries.^ 
The  production  of  coal-tar  colors  in  the  United  States 
in  1914  amounted  to  6,619,729  pounds.  In  1917  the  pro- 
duction of  finished  coal-tar  chemicals,  exclusive  of 
explosives  and  synthetic  phenolic  resins,  was  54,550,107 
pounds.® 

While  the  monopolistic  position  of  Germany  in  the  dye 
industry  was  achieved  largely  through  technical  skill, 
business  organization,  and  unfair  competitive  methods, 
her    dominant    position    in    the    potash    industry   was 

6  The  imports  of  all  coal-tar  products  and  natural  indigo 
amounted  in  1917  to  $11,670,786. 

6  See  United  States  Tariff  Commission,  *' Census  of  Dyes  and 
Coal-Tar  Chemicals,  1917.'' 

43 


M 


/• 


COMMERCIAL  POLICY 

through  natural  advantage.  Her  deposits  in  the  Stass- 
furt  districts  are  exceptionally  rich,  and  Alsace  also 
has  rich  beds.  The  United  States  had  no  potash  industry 
when  the  war  broke  out  in  Europe.  At  that  time  we 
imported  annually,  almost  entirely  from  Germany,  about 
one  million  tons  of  crude  potash  salts  which  contained  ap- 
proximately 250,000  tons  of  actual  potash  (potassium 
oxide).  By  1917  there  were  in  the  United  States  93 
producers  of  potash,  with  a  total  production  of  126,906 
tons  of  crude,  in  which  there  were  32,540  tons  of  actual 
potash  valued  at  nearly  14  million  dollars.  During  1918 
the  production  of  potash  continued  to  increase  as  is 
shown  in  the  following  table  -J 

Potash  Produced  in  the  United  States  in  1918 


Sources 

Number 
of  Pro- 
ducers 

Total 
Product- 

tion 

(short 

tons) 

Available 

Potash 

(K,0) 

(short 

tons) 

Natural  brines 

21 
4 
9 
6 
4 
5 

26 
3 

147,125 

6,073 

11,739 

14,456 

9,505 

2,818 

609 

262 

39,255 

Alunite 

2,619 

Dust  from  cement  mills 

Kolp   

Molasses  distilling  waste 

StefFens  waste  water 

1,429 

4,292 

3,322 

761 

Wood  ashes 

365 

Other  sources 

92 

Total 

78 

192,587 

52,135 

The  high  price  of  potash  has  led  to  the  use  of  substi- 
tutes, such  as  soda  salts  in  the  soap  and  glass  industries, 
but  there  is  no  satisfactory  substitute  for  potash  as  a 
fertilizer,  its  chief  use.  Certain  soils,  particularly  in 
potato-,  tobacco-  and  cotton-growing  sections,  must  have 
potash  for  their  upbuilding. 

7  Prepared  by  the  United  States  Geological  Survey. 

44 


s 


CHEMICAL  INDUSTRIES 

The  most  important  sources  of  potash  production  in 
the  United  States  are  the  brines  from  saline  lakes  in 
Nebraska,  Utah,  and  California,  kelp,  and  the  dust  from 
cement  mills.®  The  permanence  of  the  production  from 
the  first  two  sources  is  problematical.  Most  of  the  kelp 
plants,  including  the  two  largest,  have  already  shut 
down.  In  1918,  39,255  short  tons  of  available  potash 
were  recovered  from  brines  and  4,292  short  tons  from 
kelp.  High  prices  during  the  war  induced  the  invest- 
ment of  capital.  But  when  competition  with  Europe  is 
restored,  only  a  high  tariff  will  enable  the  domestic 
producer  to  compete  in  eastern  markets,  and  it  is  doubt- 
ful whether  this  is  warranted  from  the  national  stand- 
point. 

The  potash  produced  from  the  dust  of  cement  mills 
will  remain  a  permanent  source  of  supply.  Not  only 
is  it  a  profitable  by-product,  but  it  utilizes  the  dust  which 
is  a  nuisance  in  the  cement  industry.  At  Riverside, 
California,  for  example,  there  is  a  cement  factory  the 
dust  from  which  has  so  injured  the  orange  groves  that 
the  manufacturers  have  been  forced  to  find  some  means 
of  abating  the  nuisance.  Potash  will  probably  continue 
to  be  a  by-product  of  the  cement  mills  regardless  of  the 
tariff.  If  all  mills  were  to  install  dust-collecting 
machinery,  this  source  alone  would  yield  about  one-third 
of  our  normaL  pre-war  needs.  The  dust  from  blast 
furnaces  may  also  become  an  important  source. 

The  transfer  of  Alsace  from  Germany  to  France 
breaks  the  German  monopoly  in  potash.  The  Alsatian 
deposits  are  equal  in  quality  to  those  of  Stassfurt  and 
are  sufficient  to  supply  the  world's  needs  for  decades. 


8  For  a  detailed  account  of  the  development  of  these  sources 
and  of  the  potash  industry  during  the  war  see,  in  this  series, 
George  Otis  Smith,  The  Strategy  of  Minerals, 

45 


COMMERCIAL  POLICY 

Both  the  rise  of  the  American  potash  industry  and  the 
control  of  Alsace  by  France  take  from  Germany  the 
bargaining  power  with  which  her  monopoly  had  endowed 
her  and  which  she  has  at  times  threatened  to  use. 

In    the    industries   producing   thorium   nitrate    and 
incandescent  ga^  mantles  there  has  occurred  an  equally 
interesting  development.    This  was  another  case  in  which 
Germany  in  part  controlled  an  industry  by  controlling 
the  intermediate  product.      Monazite  sand,  the  richest 
deposits  of  which  are  found  in  Brazil  and  India,  is  the 
primary  raw  material.     Germany  imported  it  and  by  a 
complex    chemical    process   produced    thorium   nitrate 
therefrom.     All  the  makers  of  gas  mantles  in  the  United 
States  purchased  thorium  nitrate  from  German  pro- 
ducers  except   the  largest   American   mantle   concern, 
which  preserved  its  independence  by  maintaining  a  plant 
to  produce  its  own  supply.      The  American  costs  were 
higher  than  the  German,  but  the  added  cost  was  justi- 
fied by  the  unfair  use  which  it  was  feared  Germany 
might  make  of  a  complete  monopoly.     Nevertheless,  the 
great  part  of  the  thorium  nitrate  consumed  in  making 
mantles  in  the  United  States  came  from  Germany. 

Monazite  sand  is  found  in  North  and  South  Carolina, 
but  before  the  war  competition  with  the  deposits  in 
Brazil  and  India  made  its  mining  unprofitable.  The 
war  revived  its  production  to  some  extent.  But  the 
most  significant  development  has  been  the  importation 
from^ Brazil  of  monazite  sand  and  the  development  in 
the  United  States  on  an  extensive  scale  of  the  thorium- 
nitrate  industry.  We  shall  no  longer  need  to  look  to 
Germany  or  to  any  other  country  for  this  important 
intermediary  material. 

The   entrance   of   the   United   States   into   the  war 

46 


^ 


«'  I 


CHEMICAL  INDUSTRIES 

brought  about  another  interesting  development  in  this 
industry.  Toluol,  which  is  used  extensively  in  making 
explosives,  is  one  of  the  ingredients  of  illuminating  gas, 
and  during  the  war  a  number  of  plants  were  erected  in 
American  cities  for  its  recovery.  The  removal  of  the 
toluol  from  the  gas,  however,  depreciates  its  light-giving 
power  when  used  in  the  ordinary  open-flame  gas  burners, 
but  it  does  not  materially  decrease  its  usefulness  when 
the  incandescent  gas  mantles  are  used.  This  situation 
has  led  to  an  increased  demand  for  the  production  of 
mantles,  and  has  had  a  stimulating  influence  on  this  in- 
dustry as  well  as  on  the  industry  producing  thorium 
nitrate. 

Some  of  the  new  industrial  developments  in  the 
United  States  during  the  war  will  not  survive  the  post- 
war competition.  National  interests  do  not  require  the 
degree  of  self-sufficiency  that  the  war  has  compelled  in 
some  lines.  It  would  mean  unnecessarily  high  prices 
and  even  hardship  on  consuming  interests.  There  will 
be  a  readjustment  when  the  international  trade  returns 
to  normal  which  will  eliminate  some  American  pro- 
ducers. 

Industrial  isolation  is  not  a  wholesome  condition.  But 
neither  is  complete  industrial  dependence  upon  a  for- 
eign industry,  occupying  a  monopolistic  position,  a 
wholesome  condition.  The  war  has  demonstrated  how 
essential  it  is  to  national  interests  to  have  wdthin  our 
Nation  industries  that  produce  those  materials  and 
articles  necessary  to  military  operations  and  to  the 
operation  of  the  great  industries  of  the  United  States. 
Adam  Smith  says  that  ''defence  is  of  much  more  im- 
portance than  opulence,''  and  today  an  efficient  defen- 
sive organization  includes  not  only  armies  and  navies, 

47 


COIMMERCIAL  POLICY 

but  also  the  great  essential  industries.  We  hope  for  the 
ending  of  war,  but  it  would  be  folly  for  a  nation  to 
refuse  to  plan  for  its  own  safety,  particularly  until  in- 
ternational government  has  approached  closer  to  per- 
fection. The  war  developments  in  American  industry 
are  not  disposed  of  by  saying  that  if  they  cannot  com- 
pete with  their  foreign  competitors,  they  must  be  elim- 
inated. National  welfare  may  require  their  preserva- 
tion and  may  make  it  desirable  even  at  a  price.  A  care- 
ful survey  should  be  made  to  determine  the  essential  or 
*'key''  industries,  and  tariffs,  subsidies,  or  other  aids,  if 
necessary,  should  be  granted  in  order  that  the  percentage 
of  these  products  necessary  for  national  well-being  shall 
in  the  future  be  produced  in  the  United  States. 


4 


\ 


i 


CHAPTEE  IV 

THE  CHEMICAL  INDUSTRIES:  H,  UNDER  THE  WAR  DEMAND 

Demand  for  war  supplies  a  second  major  influence  modifying  the 
chemical  industries  —  Chlorine  in  the  manufacture  of  poison- 
ous gas  —  Effect  of  stimulating  its  production  —  Caustic  soda 
and  soda  ash  —  Sulphuric  acid  — Sulphur  resources  of  the 
United  States  —  The  war  and  Chile 's  monopoly  of  nitrate  of 
goda  —  Nitric  acid  from  synthetic  ammonia  —  Smokeless 
powder  — T.  N.  T.  — Picric  acid  —  Relationship  between  ex- 
plosives and  dye  industry  —  Varnishing  airplane  wings  — 
War  uses  of  acetone  —  Antimony  —  Quicksilver  —  Importance 
of  chemical  industries. 

The  demand  for  chemicals  and  chemical  products  in 
modern  warfare  was  a  second  major  influence  on  the 
chemical  industries  of  America.  Its  influence  was  not 
revolutionary,  however,  until  after  the  United  States 
declared  war  in  April,  1917.  By  that  time,  as  has  been 
pointed  out,  many  fundamental  changes  had  been 
caused  by  the  curtailment  of  imports  from  Central 
Europe.  War  orders  arrested  some  of  the  new  develop- 
ments and  started  some  radical  changes.  It  is  interest- 
ing to  consider  how  different  the  course  of  the  American 
chemical  industry  is  today  from  what  it  probably  would 
have  been  had  we  remained  neutral. 

The  influence  has  been  far-reaching,  not  only  because 
chemistry  has  played  such  a  vital  part  in  modern  war- 
fare, but  because  the  chemical  industries  are  so  inter- 
related that  an  effect  on  one  is  felt  in  many  others.  The 
demand  for  chlorine  in  the  manufacture  of  poisonous 
gas  is  a  case  in  point.  The  part  that  chlorine  plays  in 
the  manufacture  of  poisonous  gas  is  analogous  to  the 

49 


m 


COIVCVIERCIAL  POLICY 

part  played  by  nitric  acid  in  the  manufacture  of  explo- 
sives. The  three  important  poison  gases  are  chlorine 
itself,  phosgene,  and  mustard  gas.  Both  phosgene  and 
mustard  gas  are  compounds  of  chlorine  and  require  free 
chlorine  in  their  manufacture. 

The  electrolysis  of  a  solution  of  common  salt  yields 
caustic  soda  and  chlorine  in  chemically  equivalent 
amounts.  But  in  normal  times  the  market  demand  for 
the  former  far  exceeds  the  demand  for  the  latter,  and 
because  the  chlorine  is  dangerous  to  life  and  destroys 
vegetation,  it  cannot  be  permitted  to  escape  into  the  air. 
Hence,  the  production  by  this  process  of  caustic  soda, 
so  necessary  in  soap  making,  paper  manufacture,  mer- 
cerizing cotton,  and  the  purification  of  mineral  oils,  is 
limited  by  the  amount  of  chlorine  products  that  can  be 
sold.  As  a  result,  there  has  been  a  tendency  to  over- 
produce chlorine  in  order  to  obtain  more  caustic  soda. 
The  chief  peace-time  use  of  chlorine  was  in  making,  in 
combination  with  lime,  bleaching  powder  used  exten- 
sively in  textile  and  paper  mills.  The  home  production 
in  1914  was  155,190  tons,  and  the  importation,  chiefly 
from  Great  Britain,  was  23,712  tons.  Normally  it  was 
sold  at  very  low  prices,  in  the  neighborhood  of  two  cents 
per  pound.  As  the  production  of  caustic  soda  from  salt 
by  electrolysis  was  limited  by  the  market  for  chlorine 
products,  the  deficit  was  manufactured  from  soda  ash. 

Into  this  complex  interrelationship  the  war  brought 
many  modifying  factors.  Immense  quantities  of 
chlorine  were  required,  and  a  rapid  expansion  in  pro- 
ductive capacity  occurred  in  this  country  and  abroad. 
It  is  probable  that  at  the  end  of  1918  the  productive 
capacity  in  this  country  was  four  times  as  great  as  it  was 
in  1914,  and  large  additional  plants  were  being  erected 
when  the  armistice  was  signed.      The  production  of 

50 


CHEMICAL  INDUSTRIES 

caustic  soda  has  also  increased,  but  not  to  the  same  de- 
gree as  chlorine.  Caustic  soda,  in  addition  to  its  im- 
portant peace  uses,  is  an  essential  in  making  explosives, 
particularly  picric  acid. 

Acute  competition  in  chlorine  and  chlorine  products 
is  certain  to  arise  with  the  disappearance  of  the  war 
demand.  Peace  uses  probably  cannot  be  found  for  the 
increased  production^  and  some  of  the  new  plants  will 
have  to  shut  down.  International  competition  in 
bleaching  powder  is  certain  to  present  an  important 
problem  for  consideration. 

A  word  should  be  added  about  soda  ash  for  with  the 
exception  of  sulphuric  acid  it  is  commercially  the  most 
important  chemical  substance.  It  is  an  essential  in 
making  explosives  and  is  also  used  in  the  manufacture 
of  glass,  soap,  wood  pulp  and  paper,  and  many  other 
products.  Great  Britain  has  for  many  years  been  an 
important  producer.  Her  development  in  this  industry 
began  when  the  Leblanc  soda  process  was  the  method  of 
production.  Later,  while  retaining  the  old  process  in 
some  factories,  she  developed  on  a  large  scale  the  new 
and  more  efficient  Solvay  process.  In  1881  the  Solvay 
process  was  introduced  into  the  United  States  and  be- 
came the  basis  of  the  American  soda-ash  industry. 

Many  complicated  engineering  problems  have  arisen 
and  have  been  successfully  solved.  Recovery  of  by- 
products has  reduced  the  cost.  The  process  is  con- 
tinuous; raw  materials  are  fed  in  at  one  end  of  the 
large,  complex  plant  and  the  products  are  turned  out 
in  a  steady  stream  at  the  other.  The  large  towers  in 
which  the  main  reactions  take  place  are  often  more  than 
100  feet  high.  The  Solvay  process  uses  much  less  fuel 
and  labor  than  the  Leblanc  process.  Labor-saving  ma- 
chinery has  been  perfected.     With  a  low  labor  cost  and 

61 


COMMERCIAL  POLICY 

a  large  production,  this  industry  has  no  reason  to  fear 
foreign  competition.  It  illustrates  the  security  that 
comes  to  an  industry  that  combines  natural  advantages 
with  large-scale  mechanical  production. 

Sulphuric  and  nitric  acid  are  among  the  most  im- 
portant raw  materials  in  industry,  and  they  have  also 
played  a  decisive  part  in  the  preparation  of  war 
materials. 

Sulphuric   acid   is   essential   in   many   processes   of 
metallurgy  and  industrial  chemistry.     It  is  used  in  re- 
fining petroleum  and  other  oils,  in  reclaiming  rubber,  in 
making   artificial   fertilizers,   in   manufacturing   anilin 
dyes,  in  making  other  acids,  in  the  Leblanc  process,  in 
celluloid    manufacture,    in    galvanizing,    tinning    and 
enamelling  iron  and  steel.     With  the  development  under 
the  war  demand  of  the  explosives  and  steel  industries 
has  come  a  rapid  expansion  of  the  productive  capacity 
for  sulphuric  acid.     In  1913  the  United  States  produced 
3,500,000  long  tons  of  acid^ ;  by  1917  it  was  producing 
twice  this  amount.     The  close  of  the  war  finds  the  coun- 
try with  a  surplus  which  may  be  absorbed  by  the  dye, 
steel,  sulphate  of  ammonia,  and  fertilizer  industries. 

1  The  following  table  from  an  article  by  Frederick  A.  Clawson 
which  appeared  in  Chemical  and  Mefallurgical  Engineering  for 
September  24,  1918,  gives  the  production  of  sulphuric  acid  in  1913 
in  long  tons: 

United  States  ^'5??'??? 

Germany I,6o0,000 

Great  Britain "^'i^^??? 

Ttalv                  640,000 

France".!'.*.;'. ^50,000 

Be^'um          350,000 

eS                     260,000 

Sweden".::::  130,000 

Japan  75,000 

Bpa".::::::::: i6,ooo 

52 


CHEMICAL  INDUSTRIES 

One  of  the  most  significant  changes  wrought  by  the 
war  in  the  sulphuric-acid  industry  relates  to  its  chief 
raw  material.      Before  the  war  pyrites    (sulphide  of 
iron)  was  the  chief  material  in  this  industry,^  exten- 
sively  imported  from  Spain.      As  shipping  space  be- 
came   increasingly    scarce,    the    industry    abandoned 
Spanish  pyrites  and  began  to  use  domestic  sulphur. 
The  American  sulphur  supply  is  the  finest  in  the  world. 
The  chief  production  is  at  the  Union  Sulphur  Com- 
pany's plant,  which  is  located  in  Louisiana.     Wells  are 
sunk  in  the  rock  and  then  filled  with  hot  water  which 
melts  the  sulphur.     The  water  is  heated  above  the  melt- 
ing point  of  sulphur  (114  degrees  C.)  and  is  prevented 
from  boiling  by  great  pressure.     Thus  the  melted  sul- 
phur is  forced  out.     It  is  sufficiently  pure  in  this  state 
for  almost  every  purpose.      Sulphur  was  produced  at 
these  wells  before  the  war  at  a  cost  not  exceeding  six 
dollars  per  ton.     It  was  uniformly  sold  at  $22.50  per 
ton  f.  0.  b.  New  York.     The  low  cost  of  production  in 

2  The  following  are  the  statistics  on  pyrites  for  1913  {Chemical 
and  MetaUurgical  Engineering,  September  24,  1918) ;  _ 


Country 


Spain  and  Por- 
tugal     

Norway 

United   States. 

France 

Italy 

Germany 
(1912)    

Canada    

Eussia  (1912). 

Japan  

Hungary 

Great  Britain.. 


Produc- 
tion,-tons 


1,283,904 
441,291 
341,338 
306,267 

287,777 

258,517 
141,577 
123,990 
114,387 
104,050 
11,427 


Net  Im- 
port, tons 


Net  Ex-     I    Consump- 
portjtons       tion,  tons 


848,674 
186,348 


1,200,000 
460,912 


1,070,794 


794,740 


49,000 


84,000 

Very  small 

1,190,012 

492,615 


1,329,311 
92,000 


806,167 


53 


COIVmERCIAL  POLICY 

the  United  States  makes  it  impossible  for  the  Sicilian 
sulphur,  the  chief  foreign  supply,  to  compete.^ 

Chile  has  a  natural  monopoly  of  nitrate  of  soda,  the 
chief  raw  material  for  the  manufacture  of  nitric  acid. 
This  mineral  occurs  in  large  beds  on  the  barren,  desert 
pampas  of  the  northern  provinces  of  Chile,  and  is  ex- 
ported from  Iquique  and  Antofagasta.  Before  the  war 
about  500,000  tons  were  imported  annually  into  the 
United  States.  About  400,000  tons  were  used  for  pur- 
poses other  than  the  making  of  acid,  chiefly  as  fertilizer. 
From  the  remainder  there  was  produced  in  1914  78,589 
tons  of  acid  of  average  strength,  and  112,124  tons  of 
mixed  acid.  This  was  equal  to  89,000  tons  of  100  per 
cent.  acid.  Of  this  amount,  50,000  tons  was  for  explo- 
sives and  40,000  tons  for  other  uses. 

At  the  end  of  1918  the  annual  importation  of  nitrate 
of  soda  amounted  to  1,600,000  tons,  1,000,000  tons  of 
which  was  used  in  making  acid.  The  current  production 
of  acid  from  nitrate  of  soda  amounted  to  650,000  tons  of 
100  per  cent.  acid.  Of  this  five-sixths  was  for  military 
purposes.* 

The  most  significant  fact  about  the  nitric-acid  in- 
dustry is  the  development  of  the  process  of  making  acid 
from  sjTithetic  ammonia,  derived  from  the  fixation  of 
atmospheric  nitrogen.  The  Government  expended  for 
this  purpose  during  the  war  nearly  $100,000,000  and 
plants  have  been  erected  and  are  operated  by  the  Govern- 
ment. It  is  said  that  American  chemists  have  made  sub- 
stantial improvements  over  the  Haber  and  Ostwald 
processes  which  have  been  developed  in  Germany  as  a 

3  For  a  detailed  account  of  the  development  of  the  sulphur  and 
sulphuric  acid  industry  see,  in  this  series,  George  Otis  Smith,  The 
Strategy  of  Minerals. 

*  E.  J.  Pranke,  Journal  of  Industrial  and  Engineering  Chemistry ^ 
vol.  X  (1918),  p.  830. 

54 


CHEMICAL  INDUSTRIES 

result  of  twenty  years  of  investigation  and  work.*  Possi- 
bly after  the  war  nitric  acid  from  synthetic  ammonia 
may  be  cheaper  than  that  made  from  nitrates.^ 

Chile  has  for  many  years  raised  a  large  part  of  her 
revenue  from  an  export  tax  levied  on  nitrate  of  soda. 
Because  of  Chile's  monopolistic  position  the  incidence 
of  this  tax  fell  on  the  foreign  consumer.  But  the  im- 
provements in  processes  for  making  nitric  acid  have 
weakened  Chile's  position,  and  she  may  be  forced  to 
reduce  or  even  abandon  her  export  tax. 


Sulphuric  and  nitric  acids  together  with  cotton  linters 
are  the  most  important  ingredients  in  smokeless  powder. 
The  du  Pont  factories  have  played  an  important  part 
in  the  war.  In  fact,  it  is  not  unreasonable  to  claim  for 
them  that  they  saved  the  cause  of  the  Allies  in  1915. 
When  the  war  broke  out,  they  had  an  annual  capacity 
of  12,000,000  pounds  of  smokeless  powder.  When  the 
war  came  to  an  end,  they  were  producing  at  the  rate  of 
between  four  and  five  hundred  million  pounds  per 
annum.  The  price  of  this  powder  has  been  lowered  from 
$1.00  per  pound  in  October,  1914,  to  43i/^  cents  per 
pound  in  September,  1918.  The  end  of  the  war  finds 
immense  plants  at  'Carney's  Point,  New  Jersey,  Nash- 
ville, Tennessee,  Hopewell,  Virginia,  and  Charleston, 
West  Virginia.  They  bring  to  mind  the  larger  question 
of  the  limitation  of  armaments  and  the  control  of 
munitions  production  by  the  Government. 

Smokeless  powder  is  used  as  a  propellant,  and  should 
not  be  confused  with  high  explosives,  which  are  used  as 

B  For  a  more  detailed  account  of  the  sodium-nitrate  situation 
and  the  production  of  nitric  acid  from  atmospheric  nitrogen  see 
George  Otis  Smith,  oy.  cit, 

«  Grinnell  Jones,  Journal  of  Industrial  and  Engineering  Chem- 
istry, y  oh  x  (1918),  p.  783. 

55 


''  i 
If 


Ji 


!■ 
f 


COMMERCIAL  POLICY 

sheU  fillers.      The  most  satisfactory  shell  filler,  popu- 
larly known  as  T.  N.  T.  (trinitrotoluol),  is  made  from 
toluol       Toluol  along  with  benzol  is  stripped  as  a  by- 
product from  the  coal  gas  that  rises  from  coke  ovens. 
Stripping  plants  have  been  installed  at  every  by-product 
coke-oven  plant  and  in  many  plants  supplying  illumi- 
nating gas  for  cities.^      Small  amounts  of  toluol  have 
also  been  obtained  from  other  sources.     The  production 
of  toluol  has  increased  from  1,500,000  gallons  in  1914  to 
10,219,830  gallons  in  1917.      The  production  of  benzol 
has  increased  in  the  same  period  from  4,500,000  gallons 
to  40,192,930  gallons.^     Toluol  has  important  peace  uses, 
and  now  that  it  has  ceased  to  be  in  great  demand  for 
military  purposes,  its  large  production  will  seek  other 
markets.      It  is  used  in  making  benzoic  acid  and  sac- 
charine.    Impure  grades  of  it,  as  well  as  of  benzol,  may 
be  used  as  substitutes  for  turpentine  in  making  paints, 
varnishes,  paint  removers  and  solvents,  and  for  other 
purposes.     If  the  increased  production  lowers  the  price 
sufficiently,  it  may  be  mixed  with  gasoline  and  used  as 
motor  fuel. 

During  the  war  the  shortage  of  toluol  created  a  de- 
mand for  picric  acid,  which  is  also  used  as  a  shell  filler. 
This  demand  in  turn  created  a  demand  for  phenol,  which 
is  produced  not  only  from  coal  tar,  but  also  is  made 
synthetically  from  benzol.  A  small  s:yTithetic-phenol 
industry  had  been  maintained  in  Germany  for  military 
purposes,  but  it  is  a  new  industry  in  the  United  States. 
In  1917  there  were  15  companies  operating  with  an  out- 
put of  64,146,499  pounds,  valued  at  $23,715,805.  Phenol 
has  numerous  peace  uses,  which  include  the  manufacture 

7For    a   detailed   account    of   the    development    of   by-product 
coking  during  the  war  see  George  Otis  Smith,  op.  cit. 
T^  c'lJemica^^^^^  Commission,  -Census  of  Dyes  and  Coal- 

56 


CHEMICAL  INDUSTRIES 

of  synthetic  medicinals,  dyes,  perfumes,  flavors,  photo- 
graphic articles,  resins,  and  tanning  materials. 

The  relation  between  picric  acid  and  the  dye  known 
as  sulphur  black  illustrates  the  close  relationship  that 
exists  at  many  points  between  the  dye  industry  and  the 
high-explosives  industry.  Both  picric  acid  and  sulphur 
black  are  derived  from  benzol.  The  first  four  chemical 
steps  in  making  these  products  are  identical,  yielding 
dinitrophenol  which  may  then  be  converted  into  picric 
acid  by  treatment  with  nitric  acid  or  into  sulphur  black 
by  treatment  with  sulphur  and  sodium  sulphide.  The 
steps  are  as  follows : 

BENZOL 

Treated  with  chlorine 

MONOCHLORBENZOL 

Treated  with  nitric  acid  and  sulphur  acid 

MONOCHLORDINITROBENZOL 

Boiled  with  soda  ash 


SODIUM  DINITROPHENOL 

Treated  with 

any  acid 

DINITROPHENOL 

Treated  with 
nitric  acid 

Melted  with 
hulphur  and 
sodium  sulphide 

PICRIC  ACID  —  an 
explosive 

SULPHUR  BLACK  — 

a  dye 

57 


COMMERCIAL  POLICY 

This  helps  to  make  clear  what  is  meant  when  it  is  said 
that  the  development  of  the  dye  industry  is  a  measure 
of  military  preparedness.  Some  of  its  machinery  may 
be  turned  immediately  to  the  production  of  explosives, 
and  its  technical  staff  as  well  as  its  general  equipment 
can  be  used,  with  comparatively  little  change,  in  the 
production  of  high  explosives.  Unquestionably,  this  was 
an  important  motive  in  inducing  the  German  Govern- 
ment to  interest  itself  in  the  strong  dye  industry  of 
Germany. 

Airplane  production  has  not  been  without  its  effect 
on  the  chemical  industry.  In  the  early  days  of  the  war, 
airplane  wings  were  varnished  with  cellulose  nitrate, 
which  ignites  with  ease  and  burns  with  almost  explosive 
speed,  a  property  which  has  brought  sudden  and  fiery 
death  to  many  aviators.  America,  however,  initiated 
the  practice  of  varnishing  with  a  non-inflammable 
*'dope''  known  as  cellulose  acetate.®  This  has  led  to  a 
rapid  increase  in  the  output  of  acetic  acid  and  acetone. 

Acetone  has  three  important  uses  in  warfare.  It  was 
one  of  the  articles,  therefore,  of  which  there  was  an  acute 
shortage.  It  is  used  in  the  manufacture  of  '* cordite,'* 
the  propellant  of  British  naval  shells,  as  a  solvent  for 
airplane  wing  varnishes,  and  in  the  manufacture  of 
some  substances  used  in  gas  warfare.  Before  the  war 
the  only  source  of  acetone  was  from  the  distillation  of 
wood,  but  the  supplies  were  entirely  inadequate  to  meet 
the  war  demands.  The  wood-distillation  industry  itself 
has  been  stimulated,  but  new  sources  of  supply  have 
been  needed.  At  least  four  new  technical  processes  for 
the  manufacture  of  acetone  have  been  developed  and  put 

•  For  a  description  of  the  development  of  this  material  see,  in 
this  series,  Arthur  Sweetser,  The  American  Air  Service, 

58 


CHEMICAL  INDUSTRIES 


into  commercial  operation  since  the  outbreak  of  the 
European  War. 

Probably  the  largest  output  of  acetone  has  been 
secured  from  molasses.  The  molasses  is  fermented  to 
alcohol,  and  this  in  turn  by  a  second  fermentation 
process  is  converted  into  acetic  acid.  The  acetic  acid  is 
then  converted  into  lime  salt,  and  this  in  turn  into 
acetone  by  heating  to  a  dull  red  heat.  Another  process 
has  been  developed  for  its  production  directly  by 
fermentation  from  starchy  material.  The  process  yields 
a  by-product  of  butyl  alcohol  in  large  amounts,  and  butyl 
alcohol  is  thus  made  commercially  available  for  the  first 
time.  A  third  process  makes  acetone  from  calcium 
carbide  at  large  plants  which  have  been  erected  for  the 
purpose  at  Shawinigan  Falls,  Canada. 

The  Hercules  Powder  Company  was  offered  a  contract 
for  cordite  by  the  British  Government  at  a  very  profit- 
able figure  on  the  condition  that  the  acetone  necessary 
for  its  manufacture  should  be  obtained  from  an  entirely 
new  source.  By  these  terms  the  Hercules  Company 
could  not  become  a  competitive  bidder  with  the  British 
Government  for  the  existing  supplies  of  acetone.  The 
Hercules  Powder  Copapany  developed  a  process  for  mak- 
ing acetone  from  the  giant  kelp,  a  submarine  tree  which 
grows  off  the  California  coast. 

It  is  not  yet  clear  whether  any  of  these  processes  will 
continue  in  operation  when  the  war  demand  for  acetone 
disappears.  Their  success  will  depend  partly,  at  any 
rate,  on  the  market  for  and  the  tariffs  on  their  by- 
products. Some  of  them  may  be  a  permanent  factor  in 
the  acetic-acid  industry,  even  if  they  cannot  make 
acetone  in  competition  with  the  wood-distillation  process. 
The  factory  using  kelp  has  already  been  closed. 

The  histories  of  antimony  and  mercury  are  interesting 

59 


COMMERCIAL  POLICY 

in  their  relation  to  the  war.  During  the  four-year  period 
1913-16  the  price  of  antimony  fluctuated  from  7.5  to  30.2 
cents  per  pound,  and  that  of  mercury  from  $39.54  to 
$125.49  per  flask  of  75  pounds.  Antimony  is  used  in 
warfare  chiefly  for  hardening  lead  for  shrapnel  bullets, 
and  also,  in  the  form  of  the  sulphide,  as  an  ingredient  of 
some  primers  and  as  an  addition  to  the  explosive  content 
of  shells  for  making  a  smoke  which  will  assist  gunners  in 
finding  their  range.  Mercury's  most  important  use  is 
m  the  form  of  fulminate  of  mercury  for  detonators  of 
big  shells  and  cartridges.  The  war  demands  and  ship- 
ping restrictions  have  brought  about  radical  changes  in 
the  antimony  and  mercury  industries. 

Over  half  the  world's  antimony  is  mined  in  China. 
Other  producers  are  France,  the  United  States,  Algeria, 
and  Mexico.     For  many  years  before  the  war  the  avail- 
able supplies  of  antimony  ore  far  exceeded  the  world 
demand,  and  there  was  little  to  encourage  development 
of  antimony  deposits  other  than  those  from  which  high- 
grade  ores  could  be  obtained.     After  the  outbreak  of  the 
war  there  was  a  curtailment  of  the  metal ;  Chinese  and 
South  American  antimony  became  difficult  to  move  on 
account  of  shipping  shortage,  and  Mexican  supplies  were 
unstable.     In  these  circumstances  considerable  activity 
resulted,  and  many  deposits  in  the  United  States  which 
had  remained  idle  for  a  long  period  were  again  put  in 
operation. 

During  1904  and  1905  the  United  States  led  the  world 
in  the  production  of  mercury,  but  since  1906  Spain  has 
been  the  leading  producer,  and  has  accounted  for  about 
one-third  of  the  total.  Italy,  Austria,  and  the  United 
States  have  made  up  the  major  part  of  the  remaining 
two-thirds,  in  proportions  varying  only  slightly  in  the 
order  named.      On  the  outbreak  of  the  war  Austrian 

60 


CHEMICAL  INDUSTRIES 

supplies  were  at  once  cut  off,  and  Spanish  supplies,  con- 
trolled mainly  in  London,  were  held  for  Allied  use. 
Spanish  and  Italian  production  has  been  largely  in- 
creased since  1914,  and  the  industry  in  the  United 
States  has  also  undergone  wide  expansion.  The  rich 
ores  in  the  United  States  are  practically  exhausted  and 
few  mines  have  large  reserves  of  even  low-grade  ore. 
Treatment  of  material  carrying  less  than  0.25  per  cent, 
mercury  is  not  unusual  in  the  United  States,  whereas 
the  Spanish  mines  at  Alamaden  have  been  treating  in 
recent  years  ore  averaging  11  per  cent,  mercury.  The 
decreasing  grade  of  American  ore  has  resulted  in  a 
steady  fall  in  the  production  per  furnace  which  has  not 
been  met  by  the  construction  of  additional  equipment. 


Many  other  important  developments  in  the  chemical 
industries  might  be  mentioned.  Incendiary  bombs, 
smoke  screens  at  sea,  star  shells,  signal  rockets,  and 
other  war  demands  have  stimulated  the  production  of 
important  chemicals.  Sufficient  has  been  said,  however, 
to  indicate  the  profound  effect  that  the  war  has  had, 
both  directly  and  indirectly,  upon  the  chemical  indus- 
tries. Many  plants  have  been  erected  with  the  express 
understanding  that  they  were  to  be  scrapped  when  peace 
came.  Ample  allowance  has  been  made  for  amortiza- 
tion, but  the  problem  is  not  so  simple  as  that.  The 
building  of  plants,  the  training  of  skilled  labor,  the  com- 
plex inter-relationship  of  industries,  and  especially  the 
problems  of  national  defense  present  a  task  of  readjust- 
ment which  requires  all  the  constructive  genius  of  our 
business  men  and  statesmen.  Even  the  hasty  review 
here  given  of  the  effect  of  the  war  on  the  chemical  in- 
dustries should  make  clear  their  vital  importance  in  the 
industrial  and  military  activities  of  the  American  people. 

61 


CHAPTER  V 

AMERICAN   INDUSTRIAL  EXPANSION  IN   THE  WAKE  OF  WAR 

Effect  of  the  war  on  established  industries  of  the  United  States  — 
Period  from  August,  1914,  to  April,  1917  — Period  from  our 

entrance   into    the   war   to   the    signing  of   the   armistice 

American  textile  industries  —  Increase  in  financial  strength 
--Growth  of  export  trade  — War  orders  —  American  steel 
industry  —  Export  expansion  —  Increase  in  mill  capacity — 
Unprecedented  growth  of  American  shipbuilding  —  Its  com- 
mercial and  political  significance. 

The  war  conditions  brought  about  some  striking  de- 
velopments in  the  established  manufacturing  industries 
of  the  United  States.  In  considering  these  developments 
it  is  necessary  to  distinguish  between  two  periods,  the 
first  covering  the  time  from  the  outbreak  of  the  war  in 
Europe  to  the  declaration  of  war  by  the  United  States, 
and  the  second  beginning  with  the  entrance  of  this 
country  into  the  war  and  lasting  until  the  signing  of 
the  armistice.  As  very  important  among  the  American 
manufacturing  industries,  special  attention  will  here  be 
given  to  the  textile  and  the  iron  and  steel  industries. 
The  shipbuilding  industry,  which  under  stress  of  war 
conditions  attained  unprecedented  prominence,  will  also 
receive  consideration. 

In  the  first  period  the  disturbed  world  conditions 
brought  to  American  industry  in  general  almost  un- 
restricted stimulation  and  prosperity.  American  pro- 
ducers were  called  upon  to  supply  at  least  three  new 
demands.  In  the  first  place,  European  industries  which 
had  shared  the  American  market  with  American  manu- 
facturers were  less  and  less  able  to  keep  up  their  ex- 
port trade.     Either  they  were,  as  in  the  case  of  Belgium, 

62 


AMERICAN  INDUSTRIAL  EXPANSION 

Germany,  and  Austria,  debarred  entirely  from  foreign 
markets,  or  they  were,  as  in  the  case  of  France  and  Great 
Britain,  primarily  occupied  with  supplying  the  military 
needs  of  the  Allies.  As  European  competitors  with- 
drew from  the  American  market,  the  American  indus- 
tries endeavored  to  supply  the  full  demand.  In  the 
second  place,  there  was  an  analogous  development  in 
other  neutral  markets.  America,  like  Japan  in  the  Far 
East,^  became  an  important  factor  in  supplying  markets 
•vvhose  needs  before  the  war  had  been  very  largely  met 
by  European  countries.  The  textile  industries,  for 
example,  which  had  not  been  considered  formidable 
competitors  of  England  and  Germany  in  most  neutral 
markets,  developed  a  considerable  and  promising  export 
trade.  In  the  third  place,  American  industries,  and 
especially  the  explosives,  arms,  and  steel  industries,  re- 
ceived numerous  war  orders  from  the  belligerents. 

During  the  second  period,  beginning  with  the  declara- 
tion of  war  by  the  United  States,  w^ar  orders  of  the 
United  States  Government  at  once  became  the  over- 
shadowing influence.  The  War  Industries  Board,  the 
War  Trade  Board,  and^the  Fuel  Administration  were 
created  and  set  about  deliberately  to  mobilize  American 
industry  for  the  winning  of  the  war.  Restrictions  were 
established  on  non-essential  production  and  use  of  fuel ; 
import  and  transportation  priorities  were  granted  to 
war  industries.-  Speaking  of  the  extent  to  which  war 
demands  occupied  the  capacity  of  many  of  our  im- 
portant industries,  Dr.  F.  W.  Taussig  says  :^   . 


iSee  Chapter  VI. 

2  For  a  detailed  account  of  the  Government 's  regulation  of  dis- 
tribution see,  in  this  series,  Louis  E.  Van  Norman,  War  Time  Con- 
trol of  Commerce. 

8*'Price  Fixing  as  Seen  by  a  Price  Fixer,'*  Quarterly  Journal 
of  Economics,  February,  1919. 


63 


COMMERCIAL  POLICY 

Almost  the  entire  supply  of  many  important  articles  was 
wanted  for  government  use  —  partly  by  the  United  States 
Government  itself,  partly  by  contractors  working  for  the  Gov- 
ernment, partly  by  the  Allies.  The  extent  of  the  indirect 
demand  (from  contractors)  was  not  always  known;  but  it 
played  a  great  part,  and  was  of  essentially  the  same  character 
as  that  of  the  Government  itself.  When  things  were  at  their 
height,  the  total  non-private  demand  for  iron  and  steel  ab- 
sorbed 85  per  cent  to  90  per  cent  of  the  tonnage.  This  was  the 
maximum ;  but  at  no  time  between  the  autumn  of  1917  and  the 
autumn  of  1918  was  the  non-private  demand  for  less  than  60 
per  cent.  For  copper  the  proportions  of  maximum  and  mini- 
mum non-private  demand  for  public  use  were  no  less.  Nine- 
tenths  of  the  nickel  was  taken,  during  the  war  period  as  a 
whole,  for  Government  and  Allies'  use  and  at  least  as  much 
of  the  aluminum.  For  other  commodities  the  requirements, 
though  not  such  as  to  dominate  the  market  completely  were 
yet  so  great  as  to  threaten  to  demoralize  it.  During  the  war 
period  half  of  the  zinc  and  half  of  the  quicksilver  were  taken 
for  government  use.  Of  the  coarser  cotton  fabrics,  as  much 
as  60  per  cent  was  at  one  time  taken  by  the  Government;  of 
the  country's  entire  output  of  cotton  manufactures,  as  much 
as  30  per  cent.  For  southern  pine  lumber  the  Government's 
demand,  through  the  entire  period  of  war,  was  for  more  than  a 
fifth  of  the  cut,  and  during  the  summer  of  1918,  when  the  peak 
was  reached,  for  more  than  a  third.  For  spruce  and  fir  (Wash- 
ington and  Oregon)  the  proportion  of  the  whole  was  less;  but 
certain  sizes  suitable  for  ship  timbers,  and  certain  kinds  suit- 
able for  aircraft,  were  completely  taken  over,  and  the  "side- 
cut  "  from  these  became  an  almost  dominant  factor  in  the  com- 
mercial market.  Of  sulphuric  acid  nearly  40  per  cent  was 
taken  when  things  were  at  their  height;  and  of  nitric  acid  as 
much  as  65  per  cent. 

In  this  period  an  unprecedented  change  was  brought 
about  in  the  American  shipbuilding  industry.  The 
work  of  transporting  men  and  supplies  to  Europe,  the 
withdrawal  of  Germany's  large  mercantile  marine  from 
international  trade,  and  the  destruction  of  vessels  by 
submarines  called  for  additional  ships  and  led  to  the 

64 


AMERICAN  INDUSTRIAL  EXPANSION 

inauguration  of  a  huge  programme  of  construction.  Of 
all  the  industrial  changes  caused  by  the  war,  the  growth 
of  the  shipbuilding  industry  will  perhaps  be  the  most 
significant,  because  a  strong  American  mercnant  marine 
seems  likely  to  become  a  determining  factor  in  both  the 
commercial  and  the  general  international  policy  of  this 
country. 

The  American  textile,  steel,  and  shipbuilding  indus- 
tries played  a  part  in  the  war  no  less  important  than 
that  played  by  the  chemical  industries.  Vast  quantities 
of  clothing,  equipment,  shells,  ordnance,  arms,  armor 
plate,  and  ships  were  necessary.  The  measure  of  success 
attained  in  manufacturing  these  in  quantities  adequate 
to  meet  the  needs  first  of  the  Allies  and  then  of  the 
rapidly  expanding  American  Army  manifested  the 
adaptability  and  the  potential  capacity  of  American  in- 
dustry. Many  of  the  war-time  developments  will  prove 
of  permanent  value.  New  commodities  were  produced 
which  can  be  adapted  to  peace  needs.  Financial  organi- 
zation has  been  ipiproved  and  made  more  secure.  New 
uses  for  raw  materials  ha\^  been  devised,  new  raw  ma- 
terials and  new  sources  of  raw  materials  have  been  de- 
veloped. Foreign  trade  has  been  extended  both  in 
magnitude  and  in  range  of  markets. 

The  outbreak  of  the  war  in  1914  found  in  the  United 
States  all  the  leading  branches  of  the  cotton,  woolen,  and 
silk  industries  in  a  strong  position.  They  had  been  built 
up  under  a  system  of  high  protection  by  the  initiative 
and  business  skill  of  American  manufacturers.  Fac- 
tories were  in  operation  which  were  marvels  of  equip- 
ment and  organization.  Machinery  had  been  perfected. 
Combing  and  spinning  machinery,  Jacquard  and  auto- 
matic looms,  printing  machines  —  these  and  many  others 

65 


Il 


\ 


COMMERCIAL  POLICY 

were  not  excelled  anywhere.     A  skilled  body  of  workers 
had  been  trained. 

These  industries  were  affected  by  the  war  from  the 
first.  The  shortage  of  dyestuffs,  already  considered,* 
was  for  a  time  serious.  Substitutes  were  adopted,  pat- 
terns changed,  and  all  the  corners  of  the  earth  searched 
for  reserve  supplies.  Prices  of  dyes  mounted  unprece- 
dentedly.  But  the  rise  of  the  American  dye  industry 
before  long  removed  almost  all  these  difficulties.  Shortly 
after  the  outbreak  of  the  war  in  Europe  a  great  increase 
in  the  export  demand  for  goods  developed  as  a  result  of 
the  war  restrictions  on  European  industry,  and  war 
prosperity  led  to  a  like  increase  in  the  home  demand. 
The  textile  industries  experienced  the  greatest  prosperity 
in  their  history.  Many  mills,  formerly  in  debt  for  equip- 
ment or  for  working  capital,  have  become  independent  of 
the  commission  houses,  which  formerly  dominated  their 
output  and  their  selling  policy.  This  has  been  especially 
true  of  southern  cotton  mills,  and  their  independence 
will  increase  their  competitive  strength.  In  the  future 
these  mills  will  not  only  save  heavy  interest  and  other 
special  charges,  but  will  be  in  a  better  position  to  engage 
in  export  trade. 

The  increase  in  their  export  trade  will  very  likely  be 
retained,  in  part  at  least,  by  the  American  textile  mills. 
American  manufacturers  have  become  familiar  with  ex- 
port procedure,  and  foreign  buyers  have  learned  the 
merits  of  American  textiles.  The  United  States  has  be- 
come the  second  largest  exporter  of  manufactures  of 
cotton.  The  exports  of  cotton  goods  increased  from  the 
pre-war  record  of  $53,740,000  in  the  fiscal  year  1913  to 
$112,050,000  in  1916,  and  increased  further  in  1918  to 
$169,398,000.     Although  there  was  a  rise  in  prices  which 


*  Chapter  III. 


66 


AMERICAN  INDUSTRIAL  EXPANSION 

exaggerated  the  actual  growth  of  this  trade,  there  was, 
nevertheless,  a  very  substantial  increase  in  quantity. 
The  increase  in  the  export  of  the  more  important  cloths 
is  shown  by  the  figures  in  the  following  table  : 

Exports  op  American  Cotton  Fabrics,  1913-18 
(In  thousands  of  yards) 


Cotton   Fabrics 


Unbleached 
Bleached  . . 
Colored    . . . 

Total  . 


1913 

1916 

1917 

000 
213,190 
39,495 
192,044 

omitted 
176,627 
76,500 
297,445 

157,197 
101,566 
431,431 

444,729 

550,572 

690,194 

1918 


98,858 
144,402 
441,667 

684,927 


Our  exports  of  manufactures  of  wool  increased  from 
the  pre-war  record  of  $4,790,000  in  the  fiscal  year  1914 
to  $53,980,000  in  1916,  but  after  the  United  States  en- 
tered the  war,  the  productive  capacity  of  American  mills 
was  largely  occupied  with  war  orders,  and  the  quantity 
available  for  export  declined.  In  1917-18  the  exports 
decreased  to  $17,750,000.  '  The  exports  of  domestic  silk 
manufactures  rose  from  $2,390,000  in  1913  to  $5,204,000 
in  1916  and  then  to  $12,140,000  in  1918.  Although  the 
increased  exports  of  manufactures  of  wool  and  silk  may 
not  be  maintained  when  the  pre-war  sources  of  supply 
are  again  available,  the  American  cotton-goods  industry 
may  be  expected  to  hold  and  even  to  better  the  position 
in  the  world's  export  trade  which  it  has  gained  during 
the  war. 

The  American  exports  of  unbleached  cotton  cloth  to 
Oriental  markets  have  declined,  as  the  table  overleaf 
shows.  During  the  war  the  Japanese  took  over  that 
share  of  the  Indian  and  Chinese  markets  that  we  had 
supplied.     But  in  unbleached  cottons  we  increased  our 

67 


II 


COMMERCIAL  POLICY 

Exports  or  Unbleached  Cotton  Cloth,  1913-18 
{In  thousands  of  yards) 


Country^ 


China  

Aden    

British  Africa 

British  India 

Central  America   . . . 

Canada    

Chile 

Colombia 

Philippine   Islands. . 
Other  West  Indies.. 

Australia 

Cuba    

Venezuela   

Argentina    

United  Kingdom. . . . 

Haiti   

Mexico 

All  ojther 


1913 


Total 


78,161 

24,680 

15,269 

12,606 

11,849 

9,368 

8,346 

7,282 

6,746 

4,873 

4,675 

2,782 

1,854 

1,378 

1,257 

1,031 

443 

20,930 

213,190 


1916 


9,231 

20,615 

6,225 

12,439 

14,996 

8,163 

9,668 

5,083 

9,823 

6,029 

4,131 

6,125 

2,431 

3,900 

20,642 

4,812 

7,126 

25,188 

176,627 


1917 

1918 

2,013 

4,100 

16,856 

1,710 

11,354 

7,429 

3,399 

791 

26,187 

12,165 

8,683 

9,968 

14,293 

10,770 

5,167 

2,999 

8,462 

7,325 

6,770 

6,074 

3,972 

1,570 

6,406 

4,711 

3,521 

728 

4,463 

3,950 

4,757 

497 

4,065 

2,554 

10,924 

10,541 

15,905 

10,976 

157,197 

98,858 

*  Arranged  according  to  relative  quantities  in  1913. 

exports  to  Latin  America.  These  exports  to  Mexico, 
for  example,  amounted  in  1913  to  less  than  500,000  yards. 
In  1917  they  amounted  to  almost  11,000,000  yards.  In 
bleached  cotton  cloth  the  exports  to  Canada  and  Latin 
America,  as  shown  by  the  first  table  opposite,  substan- 
tially increased.  These  exports  to  Mexico,  for  example, 
rose  from  a  little  over  550,000  yards  in  1913  to  almost 
21,000,000  yards  in  1918. 

There  has  been  also,  as  the  second  table  opposite  shows, 
a  marked  increase  in  exports  from  the  United  States  of 
colored  cotton  cloth.  The  exports  to  Central  America, 
for  example,  which  in  1913  were  a  little  over  18,500,000 
yards,  had  increased  in'  1917  to  almost  34,000,000  yards. 
Other  similar  increases  are  indicated  in  the  table.      In 

•  68 


AMERICAN  INDUSTRIAL  EXPANSION 

Exports  of  Bleached  Cotton  Cloth,  1913-18 
(In  thousands  of  yards) 


Exports  of  Colored  Cotton  Cloth,  1913-18 
{In  thousands  of  yards) 


Country 


Philippine    Islands. . 

Central  America 

Colombia 

Haiti   

Cuba    

Canada    

Dominican   Republic. 
Other  West  Indies. . 

Australia 

Ecuador    

China  

Venezuela   

Mexico 

AU  other 


Total 


1913 


69,519 

18,698 

18,310 

18,036 

16,260 

12,950 

10,026 

8,346 

2,621 

2,380 

2,275 

1,807 

1,652 

9,164 

192,044 


1916 


45,107 

13,133 

21,729 

20,731 

44,999 

41,833 

11,237 

13,691 

7,746 

3,273 

1,198 

8,304 

24,800 

39,664 

297,445 


1917 


63,999 

33,928 

21,161 

17,112 

38,186 

59,403 

16,065 

18,207 

9,562 

6,398 

1,385 

13,814 

50,285 

81,926 

431,431 


Country 

1913 

1916 

1917 

1918 

Philippine    Islands. . 

Canada    

Cuba    

Central  America. . . . 

Chile    

Dominican  Republic. 
Bolivia 

16,995 

4,803 

3,032 

2,397 

1,871 

1,218 

1,135 

1,105 

827 

796 

553 

35 

4,728 

18,154 
5,481 
9,513 
4,204 
878 
1,945 
1,201 
2,001 
409 
6,750 
8,523 
2,685 

14,756 

14,100 
8,293 

13,604 
7,294 
4,108 
3,006 
3,118 
3,619 
1,399 
5,956 

13,178 
5,904   : 

17,987    1 

36,188 

11,854 

15,984 

5,370 

10,011 

2,687 

1  088 

Haiti   

3  786 

British  India 

Colombia  

761 
2  420 

Mexico 

Argentina   

All  other - . . . . 

21,083 

6,890 

26,280 

Total    

39,t95 

76,506 

101,566 

144,402 

1918 


76,060 

19,702 

8,036 

11,041 

57,397 

36,787 

13,251 

14,425 

7,366 

2,331 

1,810 

3,376 

76,286 

113,798 


441,666 


1918  the  marked  falling  off  of  exports  of  colored  cotton 
cloth,  as  in  the  case  of  both  bleached  and  unbleached 

69 


COMMERCIAL  POLICY 

fabrics,  was  due  to  the  occupation  of  the  American  mills 
with  American  war  orders. 

With  the  entrance  of  the  United  States  into  the  war, 
new  influences  began  to  appear  in  American  textile  in- 
dustries. There  were  restrictions  upon  exports  and 
tremendous  demands  for  war  supplies.  Added  to  the 
increased  demand  from  the  prosperous  home  markets 
and  the  almost  insatiable  demands  from  foreign  coun- 
tries, whose  usual  sources  of  supply  had  been  closed,  was 
the  enormous  demand  from  the  American  Government 
for  war  requirements.  A  large  proportion  of  textile 
machinery  was  devoted  to  Government  business  and 
civilian  needs  were  given  second  place.  The  silk  mills, 
faced  with  a  possible  restriction  of  their  use  of  fuel,  as 
well  as  of  tin,  logwood  and  other  materials,  anxiously 
sought  to  show  that  silk  was  not  a  luxury  but  an  essential 
in  clothing  the  nation. 

The  war  has  demonstrated  the  value  to  this  country 
of  being  the  main  source  of  supply  of  raw  cotton.  About 
three-fifths  of  the  world's  production  of  cotton  is  raised 
in  the  United  States.  We  normally  export  about  two- 
thirds  of  our  supply,  chiefly  to  England,  Germany,  and 
France.  Japan  gets  some  of  her  cotton  from  this  coun- 
try and  some  from  China,  although  the  greater  part  of 
her  supply  comes  from  India. 

The  war  led  to  an  expansion  in  almost  every  line  of 
cotton  manufacture,  including  particularly  such  war  ma- 
terials as  duck,  gun  cotton,  absorbent  cotton,  and 
bandage  cloth.  The  substitution  of  fibre  webbing  for 
leather  straps  is  one  of  the  war  changes  that  probably 
will  be  permanent.  The  war  demand  fell  chiefly  on 
heavy  fabrics,  such  as  duck  and  coarse  sheetings.  The 
lack  of  linen  for  airplane  wings  was  met  by  the  develop- 
ment of  special  cotton  fabrics  made  of  fine  yarns. 

70 


AMERICAN  INDUSTRIAL  EXPANSION 


The  American  woolen  industry  much  more  than  the 
cotton  industry  depends  upon  foreign  countries  for  its 
supply  of  raw  material.  The  British  Dominions  — 
Australia,  New  Zealand,  and  South  Africa  —  furnished 
in  normal  times  a  considerable  proportion  of  our  needs, 
although  during  the  war  this  supply  was  almost  entirely 
taken  over  and  controlled  by  the  British  Government. 
During  the  war  our  manufacturers  relied  largely  on 
Argentina  to  supplement  the  supply  of  domestic  wools. 

One  of  the  effects  of  our  experience  in  the  war  very 
likely  to  be  permanent  is  the  increased  use  of  cotton  and 
shoddy  mixed  with  new  wool  for  textile  manufactures. 
At  the  time  of  the  entrance  of  the  United  States  into  the 
war  the  War  Department  would  permit  no  adulteration 
of  clothing  or  other  equipment  made  for  the  Army. 
But  it  was  soon  recognized  under  pressure  of  the  need 
to  conserve  the  limited  supply  of  wool  that  wool  shoddy 
(now  more  tactfully  called  **  reworked  wool^')  and  even 
cotton  might  improve  overcoats  and  blankets.  Re- 
worked wool,  as  the  trade  has  known  for  years,  may  be  of 
better  quality  than  low  grades  of  raw  wool. 

The  resourcefulness  of  American  textile  mills  is  well 
illustrated  by  the  rapidity  with  which  carpet  mills 
turned  to  the  production  of  duck  so  greatly  needed  by 
the  Army.  America  is  the  leading  manufacturer  of 
machine-made  carpets,  and  this  industry  proved  a  na- 
tional asset,  demonstrating  its  quick  adaptability  in 
turning  out  large  quantities  of  an  essential  war 
material. 

Another  important  effect  of  the  war  has  been  the 
establishment  of  the  United  States  as  the  silk-manufac- 
turing center  of  the  world.  All  of  the  raw  silk  con- 
sumed in  this  country  is  imported.  It  is  produced  prin- 
cipally in  low-wage  countries,   chiefly  in  Japan   and 

71 


COMMERCIAL  POLICY 

China,  with  lesser  amounts  in  Ital}',  Asiatic  Turkey,  and 
France.  In  1913,  66  per  cent,  of  our  silk  came  from 
Japan,  22  per  cent,  from  China,  and  10  per  cent,  from 
Italy. 

The  silk  industry  enjoyed  great  prosperity  during  the 
war.  The  manufacture  of  silk  hosiery  especially  in- 
creased with  great  rapidity.  The  part  that  the  in- 
dustry played  in  supplying  war  needs  was  chiefly  in  the 
production  of  silk  powder  bags  for  big  military  guns. 
This  war  demand  has  left  its  permanent  effect  on  the 
industry.  As  a  direct  result  of  the  Government  demand 
for  powder  bags,  the  utilization  of  silk  waste  has  de- 
veloped in  a  most  striking  way.  It  should  be  said 
parenthetically  that  the  silk  industry  consists  of  two 
main  branches,  the  thrown-silk  industry  and  the  spun- 
silk  industry.  In  the  former  the  silk  filament  is  simply 
unwound  from  the  cocoon  and  "thrown"  into  yarn;  in 
the  latter  silk  waste  from  the  throwing  operation  or 
from  pierced  or  otherwise  defective  cocoons  is  worked 
over  and  spun  in  much  the  same  manner  as  cotton  yarns. 
It  is  this  branch  of  the  industry  that  has  been  most 
stimulated  by  the  war.  One  of  the  conspicuous  develop- 
ments in  the  spun-silk  branch  of  the  industry  has  been 
the  increased  manufacture  in  this  country  of  the  neces- 
sary equipment  and  machinery,  with  the  result  that  the 
American  silk-spinning  mills  need  no  longer  rely  on 
Europe  for  any  of  their  essential  equipment. 

The  steel  industry  was  in  a  depressed  condition  at  the 
beginning  of  the  war.  The  annual  production  of  steel, 
in  terms  of  ingots  and  castings,  had  fallen  from  31  mil- 
lion tons  in  1912  and  1913  to  23,500,000  tons  in  1914.= 
The  war,  of  course,  brought  a  very  urgent  demand  for 

B  The  Mineral  Industry,  1916,  p.  404^ 

72 


AMERICAN  INDUSTRIAL  EXPANSION 

shells  and  other  munitions.  We  know  now  that  early  in 
the  war  Germany  was  at  the  point  of  winning  because  of 
the  shortage  of  munitions  experienced  by  the  Allies. 
The  war  had  not  progressed  far,  however,  when  Charles 
M.  Schwab  arrived  in  London  and  made  the  first  of  the 
great  contracts  which  were  to  save  the  situation  for  the 
Allies  and  at  the  same  time  tremendously  to  stimulate 
American  steel  production.® 

In   addition   to  the  war  munitions  that  were  sent 
abroad,  there  was  a  marked  increase  in  the  exports  of 
steel  in  general.     Pig  iron,  billets  and  blooms,  iron  and 
steel  bars,  rails,  sheets  and  plates,  structural  steel,  wire, 
wire  rods,  nails  and  spikes,  and  pipes  and  pipe  fittings 
were  all  exported  in  large  quantities,  and  altogether 
showed  an  increase  from  1,421,800  long  tons  in  1914 
to  5,587,920  long  tons  in  1916.^     The  export  of  machin- 
ery, cutlery  and  other  forms  of  steel  manufacture  also 
showed  a   great  increase   after  the   outbreak  of  war. 
America,   in  addition  to  exporting  war  material   and 
other  steel  to  Europe,  was'  supplying  steel  for  ordinary 
uses  in  South  America  and  Oriental  markets  formerly 
controlled  for  the  most  part  by  Germany,  Great  Britain, 
and  France.     It  is  not  surprising  that  the  total  exports 
of  iron  and  steel  and  their  manufactures,  as  a  result  of 
these  unprecedented  demands  from  abroad,  increased 
from  $304,606,000  in  1913  to  $621,238,000  in  1916,  and 
then  to  $1,125,890,000  in  1918.     Some  of  the  items  of 
this  trade  are  given  in  the  table  overleaf. 

The  large  Government  orders  for  munitions  and  for 
steel  for  ships  which  resulted  from  the  declaration  of 
war  by  the  United  States  imposed  an  added  burden  on 
the  already  hard-pressed  capacity  of  the  industry. 

<i  Forum,  January,  1917,  p.  113. 

7  The  Mineral  Industry,  1916,  p.  408. 

73 


^11 


COMMERCIAL  POLICY 

Exports  op  Certain  Iron  and  Steel  Products,  1913-18 

(In  thoiisands  of  dollars) 


Bars  or  rods  of  steel 

Billets,  ingots,  blooms 

Firearms    

Forgings 

Machinery  

Bteel  rails 

Sheets  and  plates 

Shells  and  projectiles  (empty) 

Structural  iron  and  steel 

Tools    


1913 


$10,565 
5,335 
3,972 


130,554 
13,429 
23,982 


16,055 
12,660 


1916 


1918 


$37,693 
42,410 
18,065 


182,673 
17,632 
25,020 


12,005 
14,774 


$85,652 

164,883 
49,159 
37,476 

288,273 
22,774 

118,974 
27,603 
23,836 
22,829 


To  meet  these  increasing  war  and  export  demands,  the 
plants  were  forced  not  only  to  work  to  capacity  but  to 
expand  their  facilities  enormously.  New  plants  were 
built  and  extensions  were  made.  Twenty-nine  open- 
hearth  furnaces  with  an  annual  capacity  of  1,405,000 
tons  were  finished  in  1915,  and  103  additional  ones  with 
an  annual  capacity  of  4,205,000  tons  in  1916.*  The 
increase  continued  unabated  in  1917.  The  annual  ca- 
pacity of  all  the  steel  plants  of  the  country  was  about 
48,500,000  tons  on  January  1,  1918,  and  they  were  run- 
ning at  98  per  cent,  of  capacity.®  When  this  production 
is  compared  with  that  of  23,000,000  tons  in  1914,  or 
31,000,000  tons  in  the  years  1912  and  1913,  the  extent  of 
the  war-time  expansion  is  realized.  In  1916  the  United 
States  Steel  Corporation,  which  turns  out  about  half 
the  American  product,  was  spending  $250,000,000  on  im- 
provements, the  Bethlehem  Steel  Corporation,  $160,- 
000,000,  and  the  Midvale  Steel  and  Ordnance  Company, 
$75,000,000.  At  a  number  of  places  old  plants,  long  in 
disuse,  were  restored  and  put  to  work.^<*     Electric-steel 

8  Ibid.,  p.  407. 

9  Iron  Trade  Heview,  January  3,  1918,  p.  46. 
lOjPoruw,  January,  1917. 

74 


AMERICAN  INDUSTRIAL  EXPANSION 

production  grew  from  24,000  tons  in  1914  to  169,000 
tons  in  1916.  The  United  States  supplanted  Germany 
as  the  leading  producer  in  this  field.^^ 

The  increased  capacity  of  our  steel  mills  will  be  oc- 
cupied for  some  years  at  least  in  supplying  the  demands 
for  reconstruction  materials.  Building  everywhere  was 
stopped  or  retarded  by  the  war.  Factories  and  other 
buildings  were  permitted  in  most  cases  to  depreciate. 
The  wear  and  tear  on  the  railroads  of  all  countries  has 
not  been  replaced.  In  Europe  the  deterioration  has 
been  greater  than  in  this  country.  Large  quantities  of 
steel  and  machinery  will  be  required  in  rebuilding  the 
areas  devastated  by  Germany,  though  the  nature  of  the 
demand  will  depend  very  largely  on  the  means  that  we 
devise  to  finance  the  work  of  rehabilitation.  The  export 
demand  from  Latin  America  and  the  Orient  will  proba- 
bly be  greatly  increased. 

One  of  the  very  significant  war-time  developments  is 
that  of  the  American  sliipbuilding  industry.  At  the 
beginning  of  the  war  period  only  an  insignificant  part 
of  the  trade  of  the  world  was  carried  in  American  bot- 
toms. In  1914  but  little  over  a  million  gross  tons  of 
American  shipping  was  engaged  in  foreign  trade,  and 
this  tonnage  carried  only  approximately  10  per  cent, 
of  the  exports  and  imports  of  the  country.  The  coast- 
wise tonnage  was  altogether  American,  however.  Un- 
der conditions  that  existed  prior  to  the  war,  the  Ameri- 
can mercantile  marine  engaged  in  the  foreign  trade  was 
at  a  disadvantage  in  competing  with  the  shipping  of 
nations    like    Great    Britain,    Germany,    Norway,    and 

"For  a  more  detailed  account  of  the  course  of  the  iron  and 
steel  industry  during  tlie  war  see,  in  this  series,  George  Otis  Smith. 
The  Strategy  of  Minerals, 

f  75 


COMMERCIAL  POLICY 

Japan.  Shipbuilding  in  America  was  less  standardized 
than  abroad,  and  certain  factors  made  the  cost  of  opera- 
tion of  American  vessels  higher  than  that  of  foreign 
vessels. 

During  the  war,  ships  were  so  scarce  and  in  such 
demand  that  competitive  conditions  were  altered.  The 
problem  was  to  get  carrying  space,  and  freight  rates 
were  high.  This  condition  was  in  itself  a  stimulus  to 
American  shipbuilding,  but  the  great  impetus  came  when 
America  entered  the  war  and  undertook  to  defeat  the 
programme  of  the  German  submarine.  A  new  era  for 
American  shipping  began. 

Shortly  after  the  war  began,  the  President  was  em- 
powered to  requisition,  construct,  and  operate  vessels, 
without  limitation.  He  delegated  this  power  to  the 
United  States  Shipping  Board  and  its  Emergency  Fleet 
Corporation,  which  were  already  in  existence.  Author- 
ity to  construct  vessels  was  delegated  to  the  Emergency 
Fleet  Corporation,  and  the  power  to  requisition  and 
operate  was  vested  in  the  Shipping  Board. 

Under  this  authority  the  German  and  Austrian  in- 
terned ships  were  seized,  Dutch  vessels  were  requi- 
sitioned, privately  owned  American  vessels  were  com- 
mandeered, neutral  vessels  of  other  flags  were  chartered, 
the  use  of  Japanese  vessels  was  obtained  in  exchange  for 
exports  of  American  ship  plates,  and  an  extensive  pro- 
gramme of  construction  was  instituted.  As  a  result  of 
this  activity  the  United  States  Government  on  Septem- 
ber 1,  1918,  controlled  a  tonnage,  steam  and  sail  vessels 
of  500  gross  tons  and  over,  of  10,334,196  deadweight 
tons. 

The  capacity  of  the  shipbuilding  yards  has  increased 
enormously.  At  the  beginning  of  the  war  there  were 
in  the  country  37  yards  for  the  building  of  steel  ships 

76 


? 


AMERICAN  INDUSTRIAL  EXPANSION 

and  142  ways,  70  per  cent,  of  which  were  used  for  the 
construction  of  naval  vessels.  By  November,  1918,  the 
number  of  yards  had  about  trebled,  and  there  were  398 
ways.  During  the  same  time  the  number  of  yards  for 
building  wooden  ships  was  quadrupled  and  the  number 
of  ways  grew  from  73  to  418.  Four  immense  fabricating 
yards  have  been  created  for  the  construction  of  ships, 
the  standardized  parts  of  which  are  made  elsewhere. 
Five  Government-owned  yards  are  producing  concrete 
vessels. 

The  year  1917  was  one  of  preparation,  but  the  Emer- 
gency Fleet  Corporation  was  turning  out  vessels  rapidly 
by  the  end  of  1918.  In  1916,  the  best  shipbuilding  year 
before  our  entrance  into  the  war,  less  than  300,000  dead- 
weight tons  of  shipping,  steel  and  wood,  was  produced. 
During  the  year  ending  August  31, 1918,  1,800,000  dead- 
weight tons  of  steel  ships  was  completed,  and  9,113,880 
deadweight  tons  was  contracted  for.  On  November  1, 
1918,  493  steel  vessels  of  3,374,616  deadweight  tons  were 
actually  under  construction.  During  the  last  five 
months  of  1918  one  wooden  ship  a  day  was  being  turned 
out." 

Perhaps  no  war-time  industrial  change  presents  so 
many  problems  as  does  that  of  our  mercantile  marine. 
What  will  be  the  effect  of  peace  upon  the  building  pro- 
gramme? Apparently  there  is  no  thought  that  all  the 
new  yards  will  be  kept  going  at  the  present  rate.  They 
are  emergency  creations  and  many  of  them  have  been 
constructed  with  the  idea  of  but  temporary  use.  It  is 
probable,  however,  that  a  considerable  part  of  the  ship- 
building industry  will  be  maintained. 

Several  factors  enter  into  this  consideration.     One  is 


12  The  foregoing  figures  are  taken  from  the  second  Annual  Re- 
port of  the  United  States  Shijiping  Board,  December  1,  1918. 

77 


-t 


COMMERCIAL  POLICY 

the  relative  cost  of  building  ships  here  and  abroad. 
The  large-scale  production  here,  especially  the  buildinc^ 
of  the  fabricated  ship,  has  prepared  the  way  for  a  lower""- 
mg  of  the  construction  costs,  when  nornial  conditions 
return,  to  a  point  that  will  probably  permit  competition 
with  foreign-built  vessels.  But  it  is  a  question  whether 
there  will  be  a  demand  for  such  large-scale  production 
alter  the  war. 

This  introduces  the  problem   of  operating  costs  of 
shipping.      The  demand  for  tonnage  may  be  so  great 
for  a  few  years  that  no  problem  will  arise,  but  eventually 
ordinary  competitive  conditions  will  be  restored.     It  is 
not  now  apparent  that  that  time  will  find  American 
shipping  more  favorably  situated  than  before  the  war, 
when  American  shipping  was  largely  driven  from  the 
high  seas.     But  political  as  well  as  economic  factors  must 
be  reckoned  with.      There  is  a  possibility  that  the  re- 
strictive legislation  that  has  hampered  American  ship- 
ping  may  be  modified.     On  the  other  hand,  something 
like  the  American  requirements  may  be  accepted  as  an 
international  regulation,  although  this  is  extremely  un- 
likely.     Such  a  step  would  tend  to  equalize  operating 
costs.      A  more  likely  solution  of  the  problem  is  the 
granting  of  a  Government  subsidy  paid  by  general  taxa- 
tion  on  the  theory  that  it  is  desirable  from  a  national 
standpoint   for   America    to   have  a   strong  merchant 
marine.     A  further  possibility  not  to  be  overlooked  is 
that  of  the  continued  Government  operation  of  the  ships. 
In  the  latter  case  the  industry  may  be  maintained  even 
at  a  loss. 

A  large  American  merchant  marine  is  such  a  power- 
ful weapon  for  the  furtherance  of  both  commercial  and 
political  aims  that  the  fate  of  the  American  shipping  and 
shipbuilding  industry  is  of  vital  importance. 

78 


4 


f\ 


AMERICAN  INDUSTRIAL  EXPANSION 

The  organization  of  American  industry  for  the  pur- 
pose of  equipping,  transporting,  and  supplying  the 
armies  in  the  field  and  in  the  training  camps  effected 
changes  of  a  permanent  and  significant  character.  Pro- 
duction has  been  more  diversified;  unusual  calls  have 
been  made  on  the  resourcefulness  of  American  manu- 
facturers; stability  and  security  have  come  to  some 
tranches  of  industry  which  had  not  hitherto  possessed 
them.  Unquestionabl}^,  America  is  now  stronger  indus- 
trially than  she  was  before  the  war.  The  effect  of  the 
war  changes  has  been,  on  the  whole,  constructive.  Ad- 
justments will  no  doubt  be  necessary.  It  is  not  to  be 
expected  that  all  the  added  capacity  will  be  continually 
employed.  The  haste  of  war  production  has  left  some 
inefficiency  and  wastefulness  in  labor  and  materials 
which  competition  will  have  to  eliminate.  But 
America's  position  is  strong.  She  occupies  a  more  in- 
fluential place  among  the  nations  because  of  her  economic 
power.  This  makes  the  commercial  policy  of  America 
of  great  significance.  She  may  use  her  power  in  the 
interests  of  narrow  nationalism  and  exploitation  and 
become  a  bulwark  to  the  influences  of  world  imperialism. 
Or,  as  we  hope,  she  may  use  her  strength  to  support  a 
diplomatic  policy  that  will  establish  in  the  world  the 
true  ideals  of  democratic  control  and  government. 


II 


I  I 

J  li 


CHAPTER  VI 

EFFECT  OF  THE  WAR  ON  INDUSTRY  ABROAD 

^""^T^r^.f"^^  •^**'®  devastation  of  Belgium  and  France- 
w^r^^^/  f  °"'^i^  ^""^  ^'f  ^^^^  industries  as  illustrating  the 
Great  R^'fl'^''  Germany 's  industrial  life -War  demald  in 
Crreat  Britain  and  her  textile  and  steel  industries  —  Problems 
?hP  w.f  ^""^  markets- Japan's  industrial  expansion  durkg 
the  war —  Her  steel  industry  —  Her  shipbuilding  —  Her  cct- 
^etifin^n  ^--Jr''^"'^  efifectiveness  of  Japanese  corn- 
labor  '^"^  research,    business    organization,    aad 

There  is  scarcely  a  business  undertaking  in  the  world 
that  has  not  been  affected  by  the  war.     The  labor  force, 
the  character  of  the  products,  the  markets,  the  sources  of 
materials,  all  these  have  been  disturbed.     Many  of  the 
changes  were  but  incidents  of  the  war,  and  will  cease  to 
be  effective  after  a  brief  transition  period.      Indeed, 
such  will  be  the  normal  course  of  events.      Those  who 
have  looked  for  a  revolutionary  transformation  in  the 
world  of  commerce  will  doubtless  be  surprised  at  the 
rapidity  with  which  trade  will  fall  back  into  something 
like  its  old  channels.     At  certain  points,  however,  the 
old  course  will  not  be  resumed.     There  have  been  im- 
portant commercial  changes  wrought  by  the  war  that 
will  be  permanent,  and  these  changes  will  modify  ma- 
terially the  competitive  conditions  under  which  Ameri- 
can  industry  will  operate. 

The  devastation  wrought  by  the  war  in  the  industrial 
regions  of  France  and  Belgium  will  leave  its  impress  on 
industry  and  trade  for  years.  Mere  invasion  is  by  itself 
a  sufficiently  destructive  factor,  but  to  it  was  added  in 

80 


t 


% 


INDUSTRY  ABROAD 

the  case  of  our  unhappy  allies  the  wanton  destruction 
and  systematic  pillage  of  village,  factory,  and  mine. 
Tillages  were  razed  to  the  ground.  Personal  belong- 
ings, tools,  and  materials  were  carried  off.  Machinery 
was  removed  to  Germany.  Factories  were  stripped  of 
metal  and  equipment.  Mines  were  flooded.  Railways 
were  torn  up,  and  the  rails  were  twisted  beyond  hope  of 
future  use.  And  worst  of  all,  the  people  were  either  de- 
ported or  left  to  eke  out  a  miserable  existence  on  Ameri- 
can and  Allied  charity  or  on  the  little  they  might  save 
from  German  greed. 

The  destruction  in  the  war  zone  of  northern  France 
was  almost  complete.  Throughout  a  large  region  con- 
taining 20  principal  towns  and  hundreds  of  villages  in 
the  heart  of  industrial  France,  little  is  left  but  ruins. 
The  Belgian  steel  furnaces  were  almost  totally  destroyed 
and  most  of  the  modern  textile  mills  were  rendered  in- 
capable of  use  either  through  wanton  destruction  or 
through  the  removal  of  motors  and  other  machinery. 

Even  though  these  areas  are  accorded  a  prior  right  to 
the  raw  materials  and  labor  of  the  world,  as  they  will 
be,  the  task  of  rehabilitation  is  a  long  one,  and  for  sev- 
eral years  it  will  consume  the  best  energies  of  the  Bel- 
gians and  French,  and  will  prevent  them  from  competing 
with  their  former  vigor  in  international  trade. 

More  far-reaching  effects  on  industry  and  trade  have 
resulted  from  the  isolation  of  Germany.  The  industries 
of  that  country  have  suffered  serious  loss,  both  absolutely 
and  relatively.  Many  of  them  relied  heavily  upon  for- 
eign countries  both  for  raw  materials  and  for  markets. 
The  blockade  was  thus  a  double  blow  in  that  it  limited 
the  supply  and  rendered  the  market  uncertain  for  the 
products  of  many  of  Germany's  greatest  industries. 

81 


i 


if 


i 

I 


I 

I 


If 


I 


COMMERCIAL  POLICY 

Vital  changes  have  occurred  in  the  situation  of  the 
chemical  industry  throughout  the  world  on  account  cf 
the  blockade  of  Germany.  In  1912  the  exports  of 
chemical  products  from  Germany  amounted  to  approxi- 
mately $205,000,000  while  those  from  Great  Britain  were 
but  about  $105,000,000.  Japan  was  an  importer  of 
most  of  the  staple  chemicals,  her  production  being  negli- 
gible. The  position  of  Germany  depended  partly,  no 
doubt,  upon  her  abundant  supply  of  raw  materials  such 
as  potash,  but  more  upon  the  superiority  of  the  Germans 
in  applied  science,  upon  the  protection  of  her  processes 
by  secret  patents,  and  upon  business  organization. 

The  chemical  industries  of  Germany  have  been  fairly 
prosperous  during  the  war.  The  loss  of  the  export 
trade,  which  amounted  to  one-third  of  the  whole,  had  a 
depressing  effect  for  a  time,  but  later  the  expansion  of 
the  explosives  industry  and  the  increase  of  other  war 
orders  relieved  the  situation  and  fully  employed  the 
plants.  With  the  war  orders  ended,  however,  the  ex- 
port market  will  be  needed  as  much  as  ever. 

The  most  significant  thing  about  the  chemical  situa- 
tion is  the  stimulus  that  the  stoppage  of  German  supplies 
has  given  to  the  chemical  industries  of  other  nations. 
The  great  development  of  the  industry  in  the  United 
States  has  already  been  discussed.^  Production  has 
also  been  greatly  increased  in  Great  Britain.  Before 
the  war  the  British  industry  was  in  the  hands  of  a  num- 
ber of  relatively  small  concerns,  but  there  has  been  a 
decided  movement  toward  concentration  in  both  the 
general  chemical  and  the  dye-making  branches.  The 
Levenstein  Company  was  the  largest  of  the  dye  com- 
panies at  the  outbreak  of  the  war.  The  British  Dyes 
Company  was  organized  by  a  number  of  consumers  with 


Chapter  III. 


82 


INDUSTRY  ABROAD 

the  aid  of  capital  furnished  by  the  Government.  These 
two  companies  have  now  united,  with  the  Government 
exercising  its  regulatory  control. 

When  imports  of  chemicals  into  Japan  were  shut  off, 
the  Government  undertook  systematically  to  increase  the 
home  production,  with  considerable  success.      A  profit 
of  eight  per  cent,  was  guaranteed  by  the  Government 
to  producers  engaging  in  chemical  manufacture  under 
certain  conditions.    A  chemical  research  laboratory  was 
established  under  official  patronage.     There  has  been  a 
large  increase  in  the  Japanese  production  of  sulphuric 
acid,   caustic  soda,  sulphate   of  ammonia,   chlorate   of 
potash,  glycerine,  alcohol,  acetic  acid,  and  other  chemi- 
cals.    The  high  price  of  dyes  after  the  outbreak  of  the 
war,  together  with  the  increasing  demands  of  the  textile 
manufacturers  led  to  the  development  of  a  considerable 
Japanese   dye   industry.    About   650   small   companies 
were  organized  from  1914  to  1917,  but  there  were  numer- 
ous failures.     Several  larger  interests  controlling  the 
gas  and  electric  industries  have  taken  up  the  manufac- 
ture of  dyes  as  a  by-product  with  greater  success.    Their 
combined  product  is  estimated  at  about  60,000  pounds 
monthly,  but  the  number  of  available  chemists  is  inade- 
quate, and  doubt  is  expressed  as  to  the  future  of  the 
industry  under  competitive  conditions. 

The  German  textile  industries  have  also  felt  the  effect 
of  their  isolation.  Germany  is  dependent  upon  foreign 
sources  for  raw  materials  for  all  branches  of  textile 
manufacture.  Shut  off  from  these  sources,  the  Germans 
have  turned  to  the  production  of  textile  substitutes.  The 
most  important  substitute  used  was  nettle  fibre.  Sub- 
stantial sums  of  money  have  been  invested  in  nettle- 
fibre  concerns.  Good  fabrics  are  said  to  be  made  from 
it  without  any  admixture  of  cotton.     Wood  fibre  has 

83 


! 


f|^ 


Ml 


hi 


COMMERCIAL  POLICY 

been  used  as  a  source  of  cellulose,  which  in  turn  is  used 
in  making  both  explosives  and  paper  yarns.  A  material 
called  textilen,  composed  of  90  per  cent,  paper  and  10 
per  cent,  cotton,  has  been  used  in  making  some  forms 
of  military  equipment. 

In  spite  of  the  utilization  of  substitutes  the  produc- 
tion of  textile  fabrics  has  decreased  materially  in  Ger- 
many during  the  war  and  the  supply  of  clothing  and 
fabrics  has  become  very  low.  Just  how  serious  a  short- 
age exists  is  illustrated  by  the  request  made  by  the  City 
Union  of  Hotel  Keepers  at  the  time  of  the  Leipzig 
Fair  in  1918  that  prospective  guests  bring  their  own 
towels  and  bed  linen. 

The  enforced  closing  of  the  mills  and  their  adaptation 
to  substitute  materials  w^hich  apparently  have  little 
permanent,  competitive  value  have  crippled  the  German 
textile  industry.  Furthermore,  the  market  for  the  sort 
of  goods  that  the  Germans  exported,  important  among 
which  were  cotton  specialties  such  as  laces,  hosiery,  and 
gloves,  and  woolen  lightweight  dress  fabrics,  velvets, 
and  plushes,  has  passed  into  other  hands,  and  all  the 
lost  ground  will  have  to  be  contested  for  again. 

The  war  activities  of  the  various  nations  have  caused 
many  industrial  readjustments.  We  find,  for  instance, 
many  new  industries  in  Great  Britain  and  an  active 
interest  on  the  part  of  the  Government  in  their  mainte- 
nance. Other  industries  long  established  have  been 
forced  to  conform  their  interests  to  war  needs.  Vast 
war  orders  materially  altered  British  industrial  condi- 
tions. Sir  Albert  Stanley,  President  of  the  Board  of 
Trade,  stated  that  although  the  nature  of  the  output 
was  very  different,  the  aggregate  output  of  industry 
during  the  war  was  not  materially  less  than  before  the 

84 


INDUSTRY  ABROAD 

war.  Many  industries,  he  said,  had  completely  changed 
their  products  and  processes,  and  more  than  one-half 
of  all  people  employed  had  been  engaged  on  work  on 
Government  account.  These  facts  signify  that  the 
greater  part  of  British  industry  was  on  a  war  footing, 
and  that  the  readjustment  to  a  peace  basis  is  no  small 
task. 

The  submarine  interfered  with  shipping.  Ships  were 
needed  for  the  immediate  services  of  war,  and  restric- 
tions were  frequently  placed  on  British  export  indus- 
tries in  order  that  the  entire  industrial  energy  of  the 
nation  might  be  more  effectively  mobilized  to  serve  war 
needs. 

The  textile  industry  in  Great  Britain  was  considerably 
affected  by  the  war  conditions.  During  a  part  of  the 
period  there  was  a  shortage  of  raw  cotton.  This  was 
particularly  true  during  the  summer  of  1918,  when  the 
British  ships  were  so  exclusively  engaged  in  the  trans- 
port of  American  troops.  This  shortage,  of  course,  will 
soon  be  relieved.  The  war  made  conspicuous  the 
dependence  of  the  British  cotton  industry  on  American 
raw  cotton,  and  this  stimulated  interest  in  the  move- 
ment, started  before  the  war,  to  increase  the  production 
of  cotton  within  the  Empire.  The  resolutions  of  the 
Paris  Economic  Conference,-  which  proposed  to  use  raw 
materials  for  bargaining,  also  added  to  the  interest  in 
this  matter.  Many  in  Great  Britain  have  felt  that  their 
country  should  not  be  subject  to  the  political  and 
economic  conditions  that  might  result  from  a  control 
of  an  essential  raw  material  by  another  country.  Egypt 
is  the  chief  source  of  raw  cotton  within  the  Empire.  Its 
crop  was  commandeered  by  the  British  Government  dur- 
ing the  war. 

2  Quoted  in  full  in  Appendix  II. 

85 


COMMERCIAL  POLICY 

The  British  cotton  industry  before  the  war  relied  very 
largely  for  its  prosperity  on  its  export  trade.  The  war 
diverted  a  substantial  part  of  the  product  from  its  pre- 
war destinations  to  the  supplying  of  the  immediate  mili- 
tary needs.  The  best  markets  for  British  cotton  fabrics 
are  India  and  the  Far  East,  these  regions  importing 
over  half  the  entire  exportation.  By  far  the  greater 
amount  of  this  trade  has  been  held  during  the  war,  yet 
a  very  considerable  amount  of  the  Indian  market  has 
been  taken  over  by  the  Indian  and  Japanese  manufac- 
turers. The  Japanese  have,  in  a  large  degree,  supplanted 
the  British  in  the  Chinese  market.  The  British  Board 
of  Trade  Committee  on  Textile  Trades  after  the  War 
in  speaking  of  the  Chinese  trade  says: 

We  regard  as  almost  inevitable  the  gradual  elimination  of 
most  British  grey  goods  with  the  exception  of  the  finest 
standard  qualities,  and  expect  more  severe  competition  in  the 
coarser  qualities  of  white  shirtings  and  "T"  cloths;  but  to 
counterbalance  this  we  look  for  a  considerable  expansion  in  the 
shipments  of  the  finest  grades  of  bleached  goods,  and  a  greatly 
increased  trade  in  dyed,  printed,  and  woven-fancy  articles. 

The  importance  of  iron  and  steel  in  the  carrying  on 
of  war  has  stimulated  these  industries  everywhere,  and 
has  caused  important  changes  in  the  course  of  trade  in 
such  goods.  The  British  steel  industry  has  been  materi- 
ally affected.  It  was  making  little  progress  before  the 
war.  The  industry  was  not  closely  organized,  being 
broken  up  into  a  number  of  independent  concerns,  and 
it  had  for  some  time  been  failing  to  keep  pace  with  the 
highly  organized  and  growing  German  steel  industry. 
Such  has  been  the  pressure  of  war,  however,  that  in 
spite  of  difficulties  with  regard  to  the  labor  supply,  the 
production  of  steel  increased  from  about  7,700,000  tons 
in  1913  to  between  10,000,000  and  11,000,000  tons  in 

86 


INDUSTRY  ABROAD 

1917.     There  has  been   a  material   increase   in   plant 
capacity ;  in  some  cases  it  has  doubled  or  trebled. 

There  has  been  also  an  important  development  in  the 
process  of  manufacture.  Most  of  the  English  steel  had 
been  made  by  the  acid  process,  the  1915  figures  being 
5,589,157  tons  of  acid  steel  to  3,528,724  tons  of  basic 
steel.  The  supplies  of  hematite  ore,  which  are  necessary 
for  making  acid  steel,  proved  inadequate,  and  the  pro- 
duction of  basic  iron  and  steel  has  increased  greatly. 
There  is  an  ample  supply  of  ore  suitable  for  the  basic 
process,  though  the  quality  is  inferior.  There  has  been 
a  very  heavy  demand  for  steel,  especially  for  shipbuild- 
ing and  for  munitions.  Much  of  the  general  export  trade 
had  to  be  given  up  in  order  to  supply  the  home  demand 
and  the  demands  of  France  and  Italy,  who  depend 
largely  upon  the  United  States  and  Great  Britain  for 
their  supplies.  Practically  every  section  of  the  trade 
was  under.  Government  control  during  the  war. 

The  German  steel  industry  was  prosperous  during 
the  war,  the  war  orders  taking  the  place  of  the  export 
trade.  Profits  were  larger  than  before  the  war.  The 
gross  profits  of  the  Krupp  Company  were  61,900,000 
marks  in  1912-13,  128,260,000  marks  in  1914-15,  and 
143,360,000  marks  in  1915-16.  Of  course,  the  deprecia- 
tion in  value  of  German  currency  must  be  taken  into 
consideration.  Dividends  of  12  per  cent,  were  declared 
in  1914  and  1915,  and  large  reserves  were  accumulated. 
In  1916-17  a  dividend  of  10  per  cent,  was  declared,  after 
setting  aside  88,425,000  marks  for  depreciation.  Very 
extensive  improvements  were  made.  Other  steel  com- 
panies w^ere  similarly  prosperous. 

There  has  been  much  speculation  concerning  the  prob- 
able effect  upon  the  German  steel  industry  of  the  trans- 
fer of  the  Lorraine  iron  deposits  to  France.    The  effect 

87 


COMMEKCIAL  POLICY 

is  often  overestimated.     The  best  opinion  seems  to  be 
that  the  transfer  carries  with  it  greater  military  than 
commercial  consequences.     France  is  already  a  heavy 
importer  of  coal.     Germany  has  plenty  of  coal,  and  it 
is  located  not  far  from  the  Lorraine  iron.     Iron  ore, 
as  is  well  known,  is  sent  to  the  coal,  rather  than  coal 
to  the  iron.    France  will  hardly  import  coal  either  from 
Germany,  Great  Britain,  or  Spain,  and  manufacture, 
on  a  large  scale,  steel  that  will  compete  in  price  with 
steel   made   near   the   coal   mines   of   Germany,    Great 
Britain,  or  the  United  States.    It  seems  far  more  likely 
that  the  Lorraine  ore  will  move  to  the  German  iron  and 
steel  manufacturing  section  as  before  the  war.     The 
difference  is  that  it  will  appear  on  the  books  as  an  import 
into  Germany  and  an  export  from  France.     It  has  been 
suggested  that  France  might  withhold  the  iron  from 
Germany,  but  those  making  this  suggestion  lose  sight  of 
the  fact  that  France  will  probably  be  as  anxious  to  sell 
as  Germany  is  to  buy.     They  .further  fail  to  make  allow- 
ance for  the  probable  acceptance  by  the  nations  of  the 
principle  that  there  shall  be  no  such  discriminatory  regu- 
lations.     It  may  be,  however,  that  the  loss  of  the  Lor- 
raine iron  to  Germany  will  cause  a  slight  diminution  in 
its  use  in  Germany  and  a  corresponding  increase  in  the 
import  of  the  very  high-grade  Swedish  ores. 

When  the  British  and  German  steel  manufacturers 
undertake  to  resum©  their  export  business,  they  will 
have  to  meet  conditions  altered  by  the  war.  As  a  result 
of  the  decentralization  of  industry  caused  by  the  short- 
age of  shipping  and  of  materials  in  the  usual  sources 
of  supply,  new  industries  have  sprung  up  in  countries 
hitherto  not  competing  largely  in  the  export  trade,  and 
the  British  and  German  steel  will  have  to  meet  Ameri- 
can, Canadian,  and  Japanese  competition. 

88 


INDUSTRY  ABROAD 


While  the  energies  of  the  other  belligerents  were 
absorbed  in  the  struggle,  Japan  devoted  her  chief  ener- 
gies to  supplying  the  markets  which  before  the  war 
were  held  by  the  industrial  nations  of  Europe.  The 
enforced  withdrawal  of  the  European  powers  from  the 
competitive  fields  of  the  Far  East  provided  a  market 
for  Japanese  goods.  The  war  built  up  a  Japanese  indus- 
try able  to  compete  in  world  markets.  Japan's  old 
industries  were  greatly  extended  and  many  new  products 
were  made  for  the  first  time.  The  significant  feature  of 
this  development  is  that  almost  all  of  her  industrial 
progress  had  for  its  main  purpose  the  supplying  of  the 
needs  not  of  her  domestic,  but  of  foreign  markets.  The 
Japanese  Government  has  directly  interested  itself  in 
production.  This  war  stimulus  to  industry  is  one  of  the 
most  far-reaching  and  permanent  results  of  the  war 
period. 

The  steel  industry  affords  an  illustration  of  the  devel- 
opment  that  has  been  going  on  in  Japan  during  the  war 
period.  The  Japanese  had  depended  upon  Great  Britain, 
Germany,  and  the  United  States  for  steel  and  the  manu- 
factures of  steel.  Their  own  supplies  of  ore  are  inade- 
quate. Probably  the  total  reserves  do  not  exceed  one 
year's  production  of  the  Lake  Superior  region.  The 
Japanese  Government  has  maintained  a  plant  for  the 
manufacture  of  steel  for  military  and  naval  purposes, 
and  a  few  small  private  works  have  been  operated,  the 
ore  being  secured  largely  from  Korea  and  China.  How- 
ever, the  operations  have  been  on  a  small  scale,  the 
management  has  been  inexperienced,  and  the  laborers 
have  not  been  highly  skilled.  The  Government  works 
operated  at  a  loss  before  the  war. 

The  war  threatened  a  very  serious  situation  in  the 
Japanese  industries  using  steel  and  large  amounts  of 

89 


COMMERCIAL  POLICY 

machinery.  Import  from  Germany  was  cut  off  alto- 
gether, and  from  Great  Britain  it  was  drastically  cur- 
tailed. The  United  States  for  a  time  supplied  Japan's 
needs,  but  when  this  country  went  to  war,  its  exports 
of  steel  to  Japan  were  curtailed.  Meanwhile,  in  the 
earlier  years  of  the  war  the  price  of  steel  rose  enor- 
mously in  Japan.  The  needs  of  industry  were  such  that 
the  home  production  of  steel  was  imperatively  demanded. 
The  rapidly  expanding  shipbuilding  industry  especially 
demanded  steel,  and  the  United  States  was  practically 
the  only  available  source  of  supply.  To  relieve  the  situa- 
tion the  Japanese  Government  offered  inducements  to 
the  establishment  of  new  steel  concerns.  As  a  result 
a  number  of  new  companies  were  organized  and  the 
old  ones  extended  their  capacity.  The  new  and  expanded 
enterprises  are  in  the  hands  of  the  most  powerful  busi- 
ness organizations  in  the  country,  such  as  those  of  the 
Mitsui,  Mitsubishi,  and  Suzuki  Companies. 

The  raw  material  for  the"  Japanese  steel  industry  is 
secured  mainly  from  the  Asiatic  continent.  Mines  are 
being  worked  in  Korea,  China,  and  Manchuria.  The 
Government  works  obtain  most  of  their  raw  material 
from  the  mines  near  Hankow,  China.  These  mines  have 
been  more  securely  insured  to  Japan  by  the  promise 
exacted  in  1915  from  China  that  the  Chinese  Govern- 
ment would  neither  take  them  over  nor  mortgage  them 
to  foreigners  without  Japan's  consent.^  The  Shantung 
mines,  formerly  held  by  the  Germans,  have  also  been 
taken  over  by  Japan  and  they  are  being  operated  by  the 
Government. 

Private  Japanese  companies  are  establishing  lai^e 
plants  not  only  to  smelt  ore  but  to  manufacture  steel 

3  See  Appendix  III  for  Japan 's  original  demands  on  China,  24 
in  number,  presented  January  18,  1915. 

00 


\ 


INDUSTRY  ABROAD 

and  steel  goods  in  Manchuria.  This  is  probably  the 
most  promising  of  the  new  Japanese  enterprises.  Korea 
has  reserves,  problematical  in  extent,  but  sufficient  for 
present  use,  and  they  are  being  developed  by  a  large 
company.  A  number  of  shipbuilding  companies  are 
undertaking  to  make  their  own  steel. 

Japan  has  taken  advantage  of  the  serious  shortage 
in  shipping  to  develop  her  shipbuilding  industry.  In 
1914  the  Japanese  yards  turned  out  79  ships  with  a 
tonnage  of  82,000  gross  tons.  In  1917,  192  ships  of 
359,000  gross  tons  were  built.  In  1918  the  yards  were 
building  larger  ships,  and  expected  to  complete  34  ships 
with  a  tonnage  of  376,000  gross  tons.  The  present 
capacity  of  the  yards  is  probably  about  1,000,000  tons 
deadweight,  and  there  is  a  good  demand  for  the  ships 
at  highly  remunerative  prices,  but  the  lack  of  material 
has  retarded  production.  The  equipment  of  the  yards 
is  strictly  modern.  A  Government  commission  has 
recommended  the  standardization  of  construction. 

The  most  important  manufacturing  industry  of  Japan 
is  the  cotton  manufactures.  Before  the  war  Japanese 
competition  in  cotton  goods  was  confined  to  the  Far 
East  and  was  not  very  important  there.  In  1913  the 
Japanese  supplied  17  per  cent,  of  China's  importation 
of  piece  goods  and  sold  some  cotton  hosiery  in  India. 
During  the  war  period  there  have  been  changes  both  in 
the  nature  and  destination  of  goods.  Japanese  competi- 
tion in  India  is  severe,  although  Japan's  relative  share 
of  this  trade  is  still  small.  Not  only  yarns  and  grey 
goods,  but  bleached,  dyed,  and  printed  fabrics  are  enter- 
ing the  Indian  markets  from  Japan  at  prices  lower  than 
those  of  British  goods.  The  Japanese  have  entered  the 
Chinese  market  with  white  shirtings  equal  to  the  British 
production  and  with  dyed  goods,  such  as  satins  and 

91 


COMMERCIAL  POLICY 

brocades.  Some  yarns,  a  great  amount  of  cotton  crepe, 
and  lisle  gloves  are  being  sent  to  the  United  States,  and 
hosiery  and  gloves  are  being  exported  to  Great  Britain 
and  other  European  countries. 

Large  profits  reaped  during  the  war  have  placed  the 
Japanese  cotton  industry  on  a  more  secure  financial 
foundation.  The  Government  has  interested  itself  in 
the  industry  and  assistance  has  been  rendered  by  banks, 
by  the  subsidized  steamship  lines,  and  by  official  com- 
mercial agents  in  foreign  countries.  Since  the  chief 
source  of  Japanese  raw  material  is  the  coarse  cotton  of 
India,^  Japanese  competition  will  for  some  time  be  con- 
fined in  the  main  to  coarse  goods.  Finer  grades  of  raw 
cotton,  however,  are  being  obtained  from  the  United 
States,  and  attempts  are  being  made  to  produce  them 
in  Korea. 

Japan,  as  a  result  of  the. war,  has  taken  long  strides 
toward  becoming  a  more  highly  industrialized  nation. 
As  compared  with  the  United  States  and  Europe  her 
industries  are  small  and  unstable.    Her  chief  competitive 
advantage  is  her  low  labor  cost.    The  expansion  of  her 
textile,  steel,   and   chemical   industries,   in  which   the 
competition  is  and  will  remain  generally  confined  to 
the  Far  Eastern  markets,  has  been  considered.    In  many 
other  lines,  however,  her  industries  have  developed,  and 
their  competition  is  felt  severely  in  the  United  States. 
These   include   ocean   and   fresh-water   pearl   buttons, 
brushes,  matches,  lead  pencils,  knitting-machine  needles, 
surgical  instruments,  glassware,  and  earthen-  and  china- 
ware.    Japanese  industries  have  not  been  seriously  dis- 
located by  the  war  as  have  the  European  industries. 
They  have  been  developed  with  the  purpose  of  supplying 
the  markets  catered  to  before  the  war  by  Europeans. 

92 


INDUSTRY  ABROAD 

As  a  result,  Japan's  need  of  readjustment  to  peace  times 

is  slight. 

Since  Japan's  industries  are  so  largely  organized 
for  export,  her  export  statistics  are  a  good  measure  of 
the  industrial  changes  brought  about  by  the  war.  Her 
exports  for  1913,  a  pre-war  year,  as  compared  with 
1917  are  given  in  the  following  table: 

Exports  from  Japan,  1913  and  1917 


1913 


Group 


Foods,       bever- 
ages, tobacco : 
Unmanufac- 
tured 
Prepared 
Raw  materials 
Partly       manu- 
f  a  c  t  ured 
products 
Wholly      manu- 
f  a  c  t  ure  d 
products 
Miscellaneous 


Value 

(000 

omitted) 


Total 


$12,290 
18,688 
25,593 


163,540 


92,180 
2,980 


Per 
Cent. 

of 

Total 

Exports 


1917 


Value 

(000 

omitted) 


$315,271 


3.9 
f).9 

8.1 


51.9 


1.0 
100.0 


$36,639 
49,197 
40,620 


361,700 


293,195 
17,747 


$799,098 


Per 

Cent. 

of 

Total 

Exports 


4.6 
6.1 
5.1 


45.3 


36.7 
2.2 

100.0 


Per  Cent. 
Increase, 

1913- 

1917 


198.12 

163.20 

58.71 


121.16 


217.95 
495.54 


153.45 


An  examination  of  this  table  will  show  that  Japan 
was  more  of  an  industrial  nation  in  1917  than  in  1913. 
Of  the  total  value  of  her  exports  in  1913,  29.2  per  cent, 
were  wholly  manufactured  goods.  In  1917  this  class 
had  increased  to  36.7  per  cent.  Relatively  a  less  amount 
of  raw  materials  and  partly  manufactured  products 
were  exported.  Even  more  striking  is  the  absolute 
increase  of  Japan's  exports.     The  exports  of  wholly 

93 


11 


'It) 


COMMERCIAL  POLICY 

manufactured  goods  in  1917  increased  217.95  per  cent, 
over  1913.  Equally  striking  increases  occurred  in  other 
kinds  of  goods. 

A  substantial  part  of  this  export  trade  has  gone  to  the 
United  States.  Of  all  American  imports  during  the 
fiscal  year  ending  June  30,  1918,  9.67  per  cent,  were 
from  Japan.  This  exceeds  all  previous  records.  In 
the  fiscal  year  19 U  only  5.66  per  cent,  of  the  total 
American  imports  came  from  Japan. 

The  Japanese  ofiicial  figures  show  decided  gains  in 
the  export  to  the  United  States  of  a  number  of  articles, 
several  of  which  have  been  sent  in  sufficient  quantities' 
to  be  separately  listed  only  since  1917.  Some  of  the 
more  significant  increases  are  shown  in  the  following 
table : 

Exports  from  Japan  to  the  United  States,  in  Yen 

(Ye%  =  $0.4985) 


Article 


Surgical  instruments. 

Potteries  

Toys 

^fatches  

Silk  handkerchiefs   . . 

Chlorate  of  potash* . . 

Colza   oil 

Soja  bean  oil 

Cocoanut  oil* 

Cottonseed  oil* 

Brushes 

Buttons  

Plain  habutae 

Glass  and  glassware. 

Cotton  crepes 

Electric   lamps* 


1913 


203 


3,129,701 
828,869 

OO  O-tA 

739,998 


1917 


36,796 
69,049 


1,250,024 
113,349 

4,995,418 

5,534 

266,441 


477,910 
4,941,791 
3,790,499 
1,728,411 
2,320,249 
1,141,087 
2,596,648 
1,187,493 
5,056,160 

253,065 

3,716,852 

2,096,201 

16,059,486 

803,660 
1,353,808 

230,453 


*Not  listed  separately  until  1917. 

Even  more  striking  is  the  growth  of  Japanese  trade 
with  the  Asiatic  countries.     The  increase  is  especially 

94 


INDUSTRY  ABROAD 

marked  in  texiue  manufactures.  The  following  statis- 
tics from  Japanese  official  reports  indicate  the  growth 
of  Japanese  trade  in  China  and  India : 

Exports  from  Japan  to  China,  including  Hong  Kong,  in  Yen 


Article 


Grey  sheetings  and  shirtings . , 
White  sheetings  and  shirtings. 

*'T"  cloth 

Cotton  blankets 

Cotton  flannels 

Cotton  prints* 

Cotton  bags* 

Wool  blankets 

Woolen  cloths  and  serges 

European  print  paper 

Potteries  

Insulated  electric  wire 

Electric   machinery 

Telephones   


1913 


7,274,589 
206,069 

1,143,318 
113,033 
932,993 


3,258 
129,665 
402,367 
788,949 

98,883 
261,790 

23,91 1 


1917 


27,685,321 
4,116,208 
6,648,449 

992,606 
3,995,641 
4,789,397 
1,185,742 

563,241 
1,653,062 
4,841,887 
2,692,233 
1,267,805 

740,624 

202,772 


*  Not  listed  separately  until  1917. 

Exports  from  Japan  to  India,  in  Yen 


Article 


Grey  sheetings  and  shirtings.  . 
White  sheetings  and  shirtings, 

Cotton  blankets 

Mousseline    

Potteries   

Insulated  electric  wire* 

Electric   machinery 

Window  glass* 

Bleaching  powder* 

Acetic  acid* 


1913 


368,013 

152,049 

3,411 

646 

314,636 


18,674 


1917 


10,168,437 
280,752 
233,777 
337,969 
1,219,958 
464,445 
329,765 
582,340 
882,302 
435,898 


*  Not  listed  separately  until  1917. 

But  such  figures  as  the  foregoing,  considered  out  of 
relation  to  the  total  trade  in  the  commodities,  are  likely 
to  be  somewhat  misleading.  When  compared  with  the 
figures  of  total  trade  in  these  markets,  they  do  not,  in 

95 


COMMERCIAL  POLICY 

most,  cases,  show  that  Japau  is  dominating  the  markets 
in  question,  but  they  do  indicate  very  substantial  gains. 
In  fact,  the  emergence  of  Japan  as  an  industrial  nation 
and  as  a  serious  competitor  for  the  markets  of  the  world 
is  one  of  the  most  striking  and  significant  commercial 
facts  of  the  war  period. 

Before  the  war  the  only  serious   competition   that 
American   industries  met  with  in  the  home  and  the 
foreign  markets  came  from  Europe.     European  indus- 
tries, long  established  and  organized  for  export  business 
were  in  many  lines  formidable  competitors.     In  spite 
of  the  altered  conditions  resulting  from  the  war    they 
will  continue  to  be  the  most  important  competitors  of 
American  industries.     Competition  in  some  lines  will 
return  slowly  to  its  maximum  strength.    It  may  be  years 
before  the  Belgian  glass  industry  becomes  the  factor  in 
world  trade  that  it  was  before  the  war.     France  will 
not  immediately  return  with  her  former  vigor  to  the  pro- 
duction of  fine  woolen  dress  goods,  silks,  embroideries, 
laces,  and  ribbons.    Her  pottery  industry,  being  outside 
the  invaded  area,  will  more  quickly  return  to  its  pre-war 
position. 

Conditions  in  Germany  will  not  permit  her  for  some 
years  to  regain  her  former  position  in  world  trade. 
Many  of  her  industries  are  completely  disorganized. 
Others  have  so  long  been  occupied  with  war  orders  that 
they  will  need  reorganization  before  they  can  supply 
the  peace-time  demands.  Germany  has  little  raw 
material  and  at  best  it  will  be  difficult  for  her  to  get 
the  quantity  which  will  permit  her  industries  to  run  on  a 
pre-war  basis.  Many  of  her  most  highly  skilled  laborers 
have  been  killed  or  maimed.  Her  population  has  been 
weakened  by  the  war  strain.    Her  vast  selling  organiza- 

96 


INDUSTRY  ABROAD 

tions  in  foreign  countries  have  been  destroyed  or  dis- 
arranged. Germany  will  certainly  make  great  efforts 
to  return  to  her  former  position  as  a  manufacturing 
nation,  but  she  has  many  economic,  to  say  nothing  of 
political,  difficulties  in  her  path. 

Great  Britain  will  immediately  become  a  factor  in 
world  trade.    The  increased  productive  capacity  of  her 
great  war  industries  will,  with  the  cessation  of  war 
orders,  be  used  to  supply  the  export  trade.     British 
industry    has    been    further    diversified    by    the    war. 
Products  which  before  the  war  were  imported  are  now 
produced  in  Great  Britain.     The  British  Committee  on 
Commercial  and  Industrial  Policy  states*  that  ^'it  is, 
of  course,  obvious  that  the  great  staple  trades,  such  as 
coal  mining,  the  iron  and  steel  industry,  engineering, 
shipbuilding,  the  electrical  trades,  and  the  textile  and 
chemical    industries    are    of .  vital    importance    to    the 
economic  life  of  the  nation,  both  in  peace  and  war." 
It  then  adds:  *' There  are,  however,  certain  special  com- 
modities, which,  while  the  branches  of  industry  engaged 
thereon  are  not  of  such  magnitude,   are  essential  to 
national  safety   as  being  absolutely   indispensable   to 
important  British  industries,  and  were  supplied  before 
the  war  entirely  or  mainly  from  present  enemy  sources 
or  from  sources  under  present  enemy  control."     The 
''key'^  or  '' pivotal"  industries  on  which  the  Committee 
reported  are  synthetic  dyes,  spelter   (zinc),  tungsten, 
magnetos,  optical  and  chemical  glass,  hosiery  needles, 
thorium  nitrate,  barytes,  limit  and  screw  gauges,  and 
certain  drugs. 

The  enforced  protection  created  by  the  blockade  and  by 
the  occupation  of  European  industries  with  war  orders 
has  compelled  the  American  consumer  to  supply  his 

^  British  Blue  Book,  Cd.  9032  (1918). 

97 


COMMERCIAL  POLICY 

needs  from  other  sources.  When  the  Europeans  try  to 
return  to  the  American  markets  they  will  find  them 
largely  supplied  by  new  or  expanded  industries  which 
sprang  up  during  the  war.  The  United  States  is  no 
longer  dependent  on  Germany  for  chemicals,  cutlery, 
surgical  instruments,  knitting-machine  needles,  porcelain 
textile  guides,  chemical  and  optical  glass,  and  toys. 
American  full-fashioned  hosiery  has  supplanted  the 
German  product  of  the  pre-war  period.  Since  trade 
between  the  United  States  and  the  Allies  has  continued 
to  some  extent  during  the  war,  we  have  not  developed 
industrial  independence  in  many  commodities  supplied 
chiefly  by  the  Allies.  As  pointed  out  in  former  chapters, 
however,  new  branches  of  production  have  been  estab- 
lished and  old  industries  have  been  extended. 

Not  only  in  the  domestic  market  but  also  in  export 
trade  will  the  increase  in  the  productive  capacity  caused 
by  the  war  intensify  competition.  American  industries 
which  before  the  war  regarded  export  trade  as  incidental 
to  their  business  are  now  planning  to  specialize  in 
exports.  They  will  be  encroaching  on  old  preserves  of 
European  industries.  In  fact,  during  the  war  they  sup- 
plied many  markets  necessarily  abandoned  by  European 
nations.  With  the  return  of  peace,  competition  will 
become  severe  in  these  foreign  markets.  All  the  new 
developments  cannot  expect  to  survive  the  post-war  com- 
petition. In  the  readjustment  of  international  trade, 
there  will  be  an  elimination  of  the  inefficient. 

The  war  has  not  been  without  its  triumphs  in  science. 
The  achievements  of  chemistry  have  vied  with  those  of 
physics  for  first  place.  Sanitation  and  the  manufacture 
of  gas,  gas  masks,  and  explosives  have  stimulated  im- 
provements which  will  make  normal  peace  production 

98 


INDUSTRY  ABROAD 

more  efficient  and  varied.  Airplanes  may  become  a  large 
factor  in  commerce  as  a  result  of  the  war  experiences. 
Navigation,  particularly  submarine  navigation,  has  made 
great  advances.  Inventions  have  been  called  into  exist- 
ence by  necessity,  new  processes  of  manufacture  dis- 
covered, old  processes  perfected.  Automatic  machinery 
has  been  developed.  Products  and  machinery  have  been 
standardized. 

Germany  more  than  any  other  nation  before  the  war 
had  recognized  the  importance  of  applied  science,  the 
value  of  scientific  research  in  developing  the  common 
life  of  men.    Prussianism  in  its  methods  was  formidable 
'because  it  was  supported  by  the  best  intellects  of  the 
German  nation ;  but  it  was,  of  course,  weak,  and  failed 
because  it  lacked  the  indispensable  foundation  of  moral 
ideals.    The  importance  of  science  in  industry  is  realized 
in  the  United  States  and  Great  Britain  more  than  ever 
before.    Both  private  and  public  efforts  are  being  made 
to  apply  it.    The  war  stimulated  or  forced  the  installa- 
tion of  automatic  machines,  the  improvement  of  manage- 
ment, the  coordination  of  processes,  and  the  standardiza- 
tion of  products. 

Business  organization  has  also  been  affected  by  the 
war.  Concentration  has  increased.  Inefficient  plants 
have  frequently  been  forced  out  of  business.  Individual- 
ized industry  has  been  discouraged,  and  large-scale  pro- 
duction, usually  under  Government  supervision,  has  been 
developed.  Very  important  as  a  competitive  factor  in 
the  future  will  be  the  part  played  by  Governments  in 
production,  buying,  and  selling. 

From  the  standpoint  of  production  the  war  has 
affected  the  labor  supply  of  the  world  both  destructively 
and  constructively.  Its  destructive  influences  have  been 
most   evident   in   Russia,    Germany,   Austria-Hungary, 

99 


f 


COMMERCIAL  POLICY 

France,  Belgium,  and  Great  Britain.  The  labor  force 
has  been  greatly  reduced  in  numbers.  Looking  at  the 
problem  merely  from  the  economic  point  of  view,  the 
actual  loss  in  human  life  is  the  most  serious  loss  of  the 
war.  Many  of  the  killed  and  seriously  wounded  were 
the  skilled  workers  in  important  industries.  Even  those 
who  survive  have  during  the  years  of  hardship  in  warfare 
lost  skill  and  perhaps  interest  in  their  pre-war  tasks. 
Large  sections  of  the  populations  of  Continental  Europe 
were  undernourished  during  the  war  period.  It  will  be 
years  before  they  will  be  able  to  return  to  their  old 
standards  of  efficiency. 

On  the  other  hand,  the  war  has  not  been  without  its 
constructive  influences  on  labor  as  a  factor  in  produc- 
tion. Thousands  upon  thousands  of  women  have  been 
forced  from  necessity  to  take  up  the  responsibilities  of 
industry.  They  have  become  skilled  in  new  lines  — 
some  of  which  employed  only  men  before  the  war. 
Women  in  French  munition  factories,  for  example,  ran 
heavy  lathes  and  drills  and  operated  forges  and  trip- 
hammers. Nor  was  the  constructive  influence  of  the  war 
confined  to  women.  "War  itself  trained  many  men  along 
mechanical  and  organizing  lines.  Artillery,  airplanes, 
poison  gas,  the  submarine  —  each  called  for  skill  of  the 
highest  kind.  Dexterity  was  developed  in  some  countries, 
particularly  in  the  United  States  and  Japan,  by  the 
establishment  of  new  industries  and  the  extension  of  old. 

But  more  important  than  labor  as  a  factor  in  produc- 
tion are  the  laborers  as  responsible  human  beings.  In 
this  direction  the  effect  of  the  war  has  been  revolution- 
ary. Labor  is  properly  demanding  a  larger  share  in 
the  responsibilities  of  industry.  The  labor  problem  is 
now  pressing.  It  is  affecting  policy  and  will  continue  to 
be  a  large  factor  in  determining  the  course  of  events. 

100 


PART  II 

AMERICAN 
COMMERCIAL  POLICIES 


.  .  .  for  the  road  to  Internationalism  lies  through 
Nationalism;  and  no  theory  or  ideal  of  Internationalism  can 
be  helpful  in  our  thinking  or  effective  in  practice  unless  it  is 
based  on  a  right  understanding  of  the  place  which  national 
sentiment  occupies  and  must  always  occupy  in  the  life  of 
mankind. 

Alfred  E.  Zimmern. 


/ 


CHAPTEE  VII 

EQUALIZING  CONDITIONS  OF  COMPETITION 

Equalizing  conditions  of  competition  as  a  factor  in  tariff  policy  — 
** Infant  industry'*  argument  —  Argument  for  protection 
from  military  necessity  —  Doctrine  of  free  trade  —  Diversi- 
fication of  industry  and  population  and  developing  the 
nation's  productive  powers  —  Measuring  competitive  condi- 
tions—  Monetary  expenses  of  production  vs.  costs  in  the 
sense  of  sacrifice  —  What  monetary  costs  include  —  Materials 
and  resources  —  Wages  vs.  labor  cost  per  unit  of  product  — 
Overhead  expenses  —  Interest  —  Theoretical  accuracy  in  cost 
accounting  not  necessary  for  tariff  purposes  —  Monetary  costs 
of  producing  sugar  in  the  United  States  and  Cuba  — Costs 
of  cotton  yarns  in  the  United  States  and  England  —  Costs  of 
woolen  fabrics  in  the  United  States  and  England  —  Domestic 
costs  compared  with  foreign  prices  —  Value  of  domestic  con- 
version costs  alone  —  Labor  standards  and  the  tariff  —  The 
consumer— -The  United  States  Tariff  Commission  —  Taking 
the  tariff  out  of  politics. 

Since  the  first  Tariff  Act  of  the  United  States,  enacted 
July  4,  1789,  for  the  **  support  of  government,  for  the 
discharge  of  the  debts  of  the  United  States,  and  the 
encourag:ment  and  protection  of  manufactures,'*  a  tariff 
on  a  great  variety  of  products  has  been  an  accepted  part 
of  the  American  fiscal  policy.  The  difference  between 
the  advocates  of  protection  and  those  of  ''tariff  for 
revenue  only ' '  has  been  largely  one  of  emphasis.  Which- 
ever party  was  in  power,  both  the  revenue  and  the  pro- 
tective aspects  of  the  tariff  were  given  weight  in  tariff 
revisions.  Competitive  conditions  in  particular  have 
been  of  great  importance  in  American  tariff  controversies. 
In  their  tariff  platform  of  1908  the  Republicans  declared 
that:  ''In  all  protective  legislation  the  true  principle  of 
protection  is  best  maintained  by  the  imposition  of  such 
duties  as  will  equal  the  difference  between  the  cost  of 

103 


COMMERCIAL  POLICY 

production  at  home  and  abroad,  together  with  a  reason- 
able profit  to  American  industries."  **We  believe,"  the 
Progressive  platform  of  1912  saicl,  **in  a  protective  tariff 
which  shall  equalize  conditions  of  competition  between 
the  United  States  and  foreign  countries. ' '  The  Demo- 
crats in  framing  the  Tariff  Act  of  1913  claim  to  have 
been  guided  by  the  principle  of  a  *' competitive  tariff." 

The  war,  as  has  been  indicated  in  the  preceding  chap- 
ters, has  radicall}'  changed  the  competitive  position  of 
the  nations  of  the  world.  Invasion  and  wanton  destruc- 
tion have  weakened,  industrially,  Belgium  and  parts  of 
France.  Lack  of  raw  materials  and  exclusion  from  over- 
seas markets  have  affected  adversely  certain  German  in- 
dustries. Not  only  in  the  L^nited  States,  Great  Britain, 
and  Japan,  but  in  Italy,  France,  Norway,  Brazil,  and 
other  countries,  new  industries  have  been  established  and 
old  extended  as  a  result  of  difficulties  in  transportation, 
war  orders,  and  the  isolation  of  Germany.  In  all  coun- 
tries war  orders  stimulated  the  development  of  industry 
in  some  directions  and  war  restrictions  checked  it  in 
others.  There  emerges  from  the  war  an  industrial  world 
very  different  from  that  which  entered  it.  The  currents 
of  competition  have  been  modified,  and  it  becomes  desir- 
able for  the  American  nation  to  consider  again  whether 
those  industries  necessary  to  the  country's  welfare  arc 
competing  on  a  fair  and  equitable  basis.  The  policy 
of  equalizing  conditions  of  competition  with  a  fair  margin 
does  not  require  that  all  industries  that  individuals  may 
wish  to  start  in  the  United  States  should  receive  pro- 
tection. To  take  an  extreme  case,  it  would  not  be  sound 
policy  to  attempt  to  encourage  coffee  production  in 
the  United  States  by  means  of  a  tariff  that  would  equalize 
the  conditions  of  competition  between  the  United  States 
and  Brazil.     The  natural  advantages  of  Brazil  are  too 

104 


- 


' 


EQUALIZING  CONDITIONS  OF  COMPETITION 

great.  The  guiding  purpose  in  tariff  making  should  be 
the  nation 's  welfare.  Whether  conditions  of  competition 
should  be  equalized  or  not  in  a  given  industry  depends 
on  many  factors,  both  political  and  economic.  The 
framing  of  tariffs  is  fundamentally  a  matter  not  of 
statistics  or  accounting,  but  of  judgment,  commonsense, 
and  national  policy. 

The  '* infant  industry"  argument  for  protective  duties 
is  one  of  the  simplest  and  most  generally  accepted.  The 
new  industries  created  by  the  war  have  given  it  a  re- 
newed significance.  An  industry  may  be  economically 
adapted  to  the  United  States  but  unable  to  exist  during 
its  early  stages  in  competition  with  the  long-established 
industries  of  Europe.  Free  competition  would  delay  its 
development  beyond  the  time  when  it  would  be  advan- 
tageous for  the  nation  to  apply  its  capital  and  labor  to 
it.  A  tariff  under  such  conditions  provides  the  necessary 
security  under  which  the  experimental  stages  of  the  in- 
dustry may  be  worked  out.  The  psychological  elements, 
fear  and  lack  of  confidence  in  new  enterprises,  are  ob- 
stacles to  new  undertakings.  Old  established  industries 
often  have  technical,  mechanical,  and  business  advan- 
tages that  make  business  men  hesitate  to  venture  unaided 
to  erect  a  competing  industry.  They  may  be  able  —  and 
indeed  should  be  —  to  perfect  their  technical  and 
mechanical  equipment  and  business  organization  if  re- 
lieved from  the  accidental  disadvantage  in  which  they 
are  placed. 

Several  industries  established  by  war  conditions  in 
the  United  States  may  be  in  the  position  of  **  infant  in- 
dustries." In  this  class  fall  Venetians,  sueded  gloves, 
and  coal-tar  dyes,  already  examined  in  some  detail.  The 
manufacture  of  Venetians  has  been  an  established  indus- 

105 


COMMERCIAL  POLICY 

try  in  Great  Britain  for  many  years  and  the  technique 
for  finishing  these  fabrics  is  highly  developed  and  in 
some  cases  secret.  Before  the  war  Germany  was  the 
chief  source  of  sueded  gloves  and  had  developed  great 
skill  in  weaving  and  finishing  the  fabrics  from  which 
they  are  made.  The  German  dye  industry  was  perhaps 
the  most  conspicuous  case  of  the  acquisition  of  national 
control  of  an  industry  by  means  of  superior  technical 
equipment  and  business  organization.  It  would  have 
been  hopeless  for  any  country  unaided  by  a  tariff  to 
attempt  to  compete  with  Germany  in  this  field.  Tech- 
nical and  administrative  disadvantages,  however,  must 
in  time  be  overcome.  No  industry  can  continue  indefi- 
nitely to  claim  the  ** infant  industry^'  argument  as  a 
justification  for  duties  on  the  products  of  its  foreign 
competitors.  The  protected  industry  must  become  effi- 
cient, but  even  efficient  industries  may  have  a  claim  to 
protective  measures  that  will  justify  equalizing  competi- 
tive conditions  for  them.  There  are  other  grounds  for 
protection. 

Military  necessity  may  justify  the  encouragement,  by 
means  of  bounties  or  tariffs,  of  industries  which  on 
purely  economic  grounds  would  not  be  maintained. 
War-time  experiences  have  made  this  amply  evident. 
Certain  industries  have  proved  to  be  essential  for 
national  safety.  They  include  not  merely  those  produc- 
ing explosives  and  munitions,  but  those  that  produce,  or 
are  contributory  to  those  that  produce,  the  great  essen- 
tials of  national  life.  Germany  planned  her  agricultural 
and  manufacturing  activities  with  reference  to  her  mili- 
tary efficiency.  Her  interest  in  the  maintenance  of  her 
dye  industry,  for  example,  was  no  doubt  due  in  a  large 
measure  to  its  close  relationship  with  the  high-explosives 

106 


« 


i 


EQUALIZING  CONDITIONS  OF  COMPETITION 

industry.  In  some  cases,  as  we  have  already  illustrated, 
the  operations  for  making  dyes  and  explosives  are 
identical  until  the  final  stages,  and  in  many  other  cases 
the  equipment  and  technical  staff  can  be  turned  to  the 
making  of  war  materials.  Not  only  is  the  dye  industry  a 
direct  military  asset,  but  it  is  essential  to  the  successful 
operation  of  the  textile  and  other  important  industries. 

The  war  stimulated  in  Great  Britain  an  active  interest 
in  the  industries  **  essential  to  the  future  safety  of  the 
nation."  The  final  report  of  the  British  Committee  on 
Commercial  and  Industrial  Policy  after  the  War^  recog- 
nized the  vital  importance  to  the  economic  life  of  the 
nation  of  the  **  great  staple  trades,  such  as  Coal  mining, 
the  Iron  and  Steel  Industry,  Engineering,  Shipbuilding, 
the  Electrical  Trades,  and  the  Textile  and  Chemical 
Industries,"  but  added  th^t  there  were  *' certain  special 
commodities  which,  whilst  the  branches  of  industry  en- 
gaged therein  are  not  of  such  magnitude,  are  essential  to 
national  safety,  as  being  absolutely  indispensable  to  im- 
portant British  industries."  The  industries  producing 
these  special  commodities  were  designated  *'key"  or 
' '  pivotal ' '  industries.  Those  enumerated  by  the'British 
Committee  were  synthetic  dyes,  spelter  (zinc),  tungsten, 
magnetos,  optical  and  chemical  glass,  hosiery  needles, 
thorium  nitrate,  limit  and  screw  gauges,  and  certain 
drugs,  but  it  added  that  *'new  essential  industries  may 
emerge  in  the  future. ' ' 

The  British  Government's  method  of  encouraging 
essential  industries  may  be  illustrated  by  its  action  in 
the  case  of  synthetic  dj^es.  An  alternative  for  the  tariff 
is  found  in  a  memorandum  by  the  British  Board  of 
Trade^  on  the  *' Scheme  for  the  Allocation  and  Adminis- 

1  British  Blue  Book,  Cd.  9035  (1918),  p.  31.  " 

2  British  Blue  Book,  Cd.  9194  (1918),  p.  2. 

107 


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COMMERCIAL  POLICY 

tration  of  the  Funds  provided  by  Parliament  for  the 
Development  of  the  Dye  Industry  by  Means  of  Financial 
Assistance  to  Companies  and  Firms  in  Aid  of  Develop- 
ments, Extensions  and  Research. ' ' 

The  purpose  of  this  State  aid  to  the  dye  industry  is 
to  insure  that  the  requirements  of  the  textile  and  other 
trades  of  the  United  Kingdom  and  of  other  parts  of  the 
British  Empire,  which  are  largely  dependent  upon  an 
adequate  supply  of  dyes,  are  met  within  a  reasonable 
period  to  an  extent  sufficient  to  **make  them  independent 
of  German  dyestuffs. '  ^    The  memorandum  continues : 

It  is  no  part  of  the  object  of  the  scheme  to  assist  financially 
the  formation  or  development  of  any  dye-making  business  in 
the  interest  of  the  business  as  such;  but  it  is  recognised  that 
the  developments  of  the  manufacture  of  dyes  on  a  scale  more 
than  suflQcient  to  meet  British  requirements,  and  enabling  a 
substantial  export  trade  to  be  carried  on,  is  most  desirable  if 
the  industry  is  to  be  firmly  and  permanently  established,  and 
the  cost  of  production  brought  down  to  a  point  which  will 
make  competition  with  the  very  large  scale  industry  of  Ger- 
many commercially  possible.  Neither  financial  assistance  nor 
special  priority  for  materials  and  labour  will  be  available  for 
the  extension  of  the  manufacture  of  dyes  already  in  sufficient 
supply  for  Empire  markets,  nor  for  any  general  development 
not  important  as  contributing  directly  to  the  main  purpose. 
If  the  industry  is  established  sufficiently  to  meet  British  de- 
mands at  reasonable  prices  the  object  of  the  Government  will 
be  attained,  and  a  sound  foundation  laid  for  such  further  de- 
velopments by  the  unaided  efforts  of  the  manufacturers  as 
may  appear  commercially  expedient  and  practicable.  The 
policy  so  far  as  regards  priority  is  determined  primarily  by 
the  present  serious  shortage  of  labour  and  materials;  so  long 
as  that  continues,  such  resources  as  are  available  must  be 
utilised  in  the  first  instance  for  securing  the  supplies  of  dye- 
stuffs  necessary  for  British  industry,  and  only  thereafter  and 
in  so  far  as  there  may  be  a  surplus  of  labour  and  materials, 
can  development,  on  a  larger  scale  and  determined  by  ordinary 
commercial  considerations,  be  allowed. 

108 


\ 


I 


EQUALIZING  CONDITIONS  OF  COMPETITION 

As  the  Government  financial  assistance  to  be  given  to  the 
industry  will  be  governed  by  these  considerations,  it  is  de- 
sirable to  make  quite  clear  the  principles  on  which  the  ad- 
ministration of  such  assistance  will  proceed.  The  financial 
assistance  proposed  is  of  two  kinds : — (A)  Loans;  (B)  Grants- 
■  in- Aid  of  (i)  Buildings  and  Plant,  and  (ii)  Research. 

(A)  Loans  will  be  for  the  purpose  of  assisting  in  the  pro- 
vision of  capital  at  a  commercial  rate  of  interest  for  the 
further  development  of  the  Dye  Industry,  particularly  in  the 
direction  of  the  manufacture  of  those  special  classes  of  dyes 
which  are  reasonably  necessary  for  dye-users  but  are  not  being 
manufactured  in  this  country  at  all,  or  are  manufactured  on 
an  insufficient  scale,  and  require  for  their  adequate  manu- 
facture in  a  short  time  an  unduly  heavy  outlay  on  plant  and 
equipment. 

(B)  Grants  will  be  of  two  kinds:  — 

(i)  Grants-in-aid  of  the  cost  of  plant  and  buildings  pro- 
vided mainly  for  the  purpose,  described  in  the  preceding  para- 
graph, such  grants  being  intended  to  compensate  for  the  in- 
crease in  the  cost  over  the  normal  and  to  meet  special  deprecia- 
tion and  obsolescence  due  thereto,  or  for  other  special  circum- 
stances due  to  war  conditions. 

The  grants  are  to  be  paid  as  the  work  on  account  of  which 
they  are  granted  proceeds,  but  they  may  also  be  retrospective 
for  any  period  dating  from  or  since  the  1st  January,  1916. 
These  grants  will  be  subject  to  repa>Tnent  to  the  extent  of  the 
whole  or  any  portion  of  the  increased  cost  which  may  be  re- 
covered from  the  Inland  Revenue  as  a  reduction  of  Excess 
Profits  Duty  consequent  upon  any  allowance  made  by  that 
Department  on  account  of  such  special  depreciation  or 
obsolescence. 

Grants-in-aid  under  this  head  will  not  exceed  40  per  cent 
of  the  cost  of  the  plant  and  buildings  on  account  of  which  the 
grants  are  made. 

(ii)  Grants-in-aid  of  Research.  For  this  purpose  research 
is  to  be  understood  to  mean  specialised  technical  research  con- 
ducted in  connexion  with  the  actual  manufacture  of  dyes  and 
advanced  intermediates,  and,  as  accessory  thereto,  for  the  pur- 
pose of  discovering  new  dyestuffs  or  intermediates  and  the 
discrimination  of  those  of  value  for  the  purposes  of  the  in- 

109 


!li 


1,1 


II 


% 


COMMERCIAL  POLICY 

dustry,  or  new  processes  for  the  production  of  known  dye- 
stuffs  and  the  improvement  of  their  quality.  It  is  considered 
that  this  technical  research,  whilst  distinct  from  the  actual 
technical  routine  of  manufacturing  operations,  is  nevertheless 
an  inherent  part  of  the  industry  and  properly  enters  into  the 
cost  of  production,  since  experience  shows  that  in  normal  times 
a  constant  flow  of  new  colors  or  varieties  of  colors  is  neces- 
sary for  the  maintenance  of  those  dye-using  trades  which  are 
subject  to  outside  competition.  Further,  whilst  the  industry 
is  in  process  of  establishment,  the  functions  of  the  research 
department  are  doubly  important,  as,  besides  the  task  already 
mentioned,  it  has  as  its  primary  duty  the  development  of 
processes  for  the  production  of  colours  of  which,  though  the 
fundamentals  of  their  manufacture  may  be  known,  there  is  no 
output  in  this  country  or  only  an  insufficient  one.  Research 
of  this  character,  which  must  be  carried  out  in  close  connexion 
with  actual  manufacturing  operations,  involves  expenditure 
on  equipment,  some  of  which  at  least  may  not  result  in  any 
commercial  advantages  for  a  considerable  time;  and  in  the 
special  circumstances  of  the  industry  it  appears  to  be  a  proper 
subject  of  State  aid. 

Under  this  proposed  plan  no  dyes  are  to  be  imported 
into  Great  Britain  without  special  license.  A  Trades  and 
Licensing  Committee,  consisting  of  a  chairman  appointed 
by  the  Board  of  Trade,  four  members  representing  color 
users,  and  four  members  representing  dj'e  manufac- 
turers, is  to  determine  what  colors  and  intermediates 
shall  be  licensed  to  be  imported  into  the  country  and  in 
what  quantities.  Licenses  will,  no  doubt,  be  refused  in 
the  case  of  all  dyes  that  are  being  manufactured  in 
Great  Britain  in  quantities  sufficient  to  supply  the  Brit- 
ish consumer.  A  recent  order  of  the  Australian  Govern- 
ment prohibiting  the  importation  of  dyes  and  dyestuffs 
not  of  British  manufacture  indicates  that  the  British 
Dominions  may  cooperate  in  fostering  the  British  dye 
industry. 

A  significant  factor  in  the  situation  is  that  the  dye 

110 


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EQUALIZING  CONDITIONS  OF  COMPETITION 

industry  in  Great  Britain  is  coming  under  Government 
control.  Two  large  concerns  manufacturing  dyes  in 
Great  Britain,  the  British  Dyes,  Limited,  and  Levinstein, 
Limited,  have  been  combined.  The  British  Dyes, 
Limited,  has  been  organized  since  the  outbreak  of  the 
war.  A  large  part  of  its  capital  was  supplied  directly 
by  the  British  Government,  and  the  board  of  directors 
is  controlled  by  representatives  of  the  Government. 
Levinstein,  Limited,  was  controlled  by  private  capital. 
A  third  large  company  in  England  is  L.  B.  Holliday 
and  Company,  Limited.* 

This  plan  of  State  assistance  to  the  dye  industry  in 
Great  Britain  is  very  significant.  It  is  an  alternative 
for  a  protective  tariff.  Prohibition  of  import,  licenses, 
loans,  subsidies,  and  grants,  together  with  a  tendency 
to  nationalize  industry,  have  very  far-reaching  possibili- 
ties. Passing  over  the  difficulties  of  administration  and 
the  adjustment  of  difficulties  within  the  country  itself, 
there  should  be  mentioned  the  possibility  of  discrimina- 
tions against  foreign  producers,  and  also  the  difficulty 
that  will  arise  in  any  attempt  to  export  dyes  produced 
in  factories  that  have  been  assisted  by  the  State.  If 
such  assistance  enables  these  factories  to  undersell  for- 
eign competitors,  there  will  be  a  tendency  to  raise 
countervailing  tariffs  against  them. 

Each  nation  will  have  to  determine  from  its  peculiar 
situation  what  essential  industries  should  be  encouraged 
from  the  standpoint  of  national  safety.  In  the  United 
States  practically  all  the  great  staple  trades  are  well 
established,  but  our  experience  with  *'key"  or  ** pivotal" 
industries  was  not  unlike  that  of  Great  Britain.  In 
some  cases  direct  state  aid  may  prove  desirable,  but  in 
most  cases  —  synthetic  dyes  included  —  the  tariff  is  the 

8  Commerce  Reports,  December  30,  1918,  p.  1203, 

111 


V  i 


COMMERCIAL  POLICY 

most    satisfactory     method     of    establishing     national 
security. 

Before  a  more  general  theory  of  protection  is  sug- 
gested, brief  reference  should  be  made  to  the  origin  and 
application  of  the  free-trade  doctrine.  In  the  seven- 
teenth and  eighteenth  centuries  the  interference  of  the 
State  with  industry  and  trade  became  so  disturbing  that 
thinkers  began  to  lean  to  the  other  extreme,  and  by  the 
end  of  the  eighteenth  century  many  were  willing  to  say 
that  there  should  be  no  State  control.  Rather  they  said : 
**Let  commerce  take  its  natural  course,  remove  restric- 
tions, adopt  free  trade,  let  competition  have  free  play, 
and  let  Governments  keep  their  hands  off,  laissez  faire,** 
These  ideas  have  been  wholesome  as  a  protest  against 
authority  and  regulation.  Many  times  have  they  served 
effectively  against  outworn  institutions;  they  have 
afforded  a  standard  by  which  to  measure  cause  and 
effect  in  economic  life.  It  is  when  they  have  been  urged 
as  a  positive  policy  that  they  have  frequently  misled. 
Perhaps  the  most  woeful  failure  of  this  practice  of 
laissez  faire  has  been  in  industry,  where  individuals, 
pleading  their  divhie  right  to  run  their  own  affairs, 
have  established  a  system  of  exploitation  under  which 
society  is  still  struggling.  Many  thinkers  who  have 
abandoned  the  ideas  of  laissez  faire  in  industry  and 
other  social  relations  hold  it  desirable  in  international 
trade,  and,  therefore,  are  opposed  to  a  protective  tariff 
except  on  a  few  special  grounds. 

Unfortunately,  the  problems  of  commercial  policy  are 
not  so  simple  as  they  appear  to  those  who  regard  free 
trade  as  a  ** harbinger  of  an  Utopia.'*  International 
problems  cannot  be  solved  by  a  single  formula.  Imposi- 
tion of  the  same  economic  policy  upon  nations  in  dif- 

112 


h 


\ 


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EQUALIZING  CONDITIONS  OF  COMPETITION 

ferent  stages  of  development  does  not  necessarily  result 
in  equality  and  fairness.  It  may  result  in  most  vicious 
inequality. 

Great  Britain  is  not  a  free-trade  nation  solely  because 
she  believes  in  * '  the  obvious  and  simple  system  of  natural 
liberty''  advocated  by  Adam  Smith  and  others  of  the 
classical  economists,  nor  does  she  hold  to  the  doctrine 
because  of  philanthropy.  In  1848  Karl  Marx  argued 
that  the  movement  to  repeal  the  Corn  Laws  in  Great 
Britain  was  merely  the  working  out  of  the  Ricardian 
theory  of  wages  and  profits  —  that  cheap  food  makes 
low  wages,  low  wages  high  profits.*  If  this  be  too  severe, 
it  is  at  least  as  near  the  truth  as  the  statement  that  free 
trade  in  Great  Britain  was  the  application  of  pure 
philosophy  to  public  affairs.  Freedom  in  world  com- 
merce is  an  important  factor  in  maintaining  Great 
Britain's  position  as  a  great  power.  Set  in  the  midst 
of  the  sea  at  the  door  of  Europe,  she  early  became  the 
chief  sorting,  packing,  and  transshipment  point  in  the 
world.  Her  industries,  which  are  great  and  varied,  are 
largely  so  because  of  the  coming  and  going  of  her  ships. 
A  large  portion  of  the  raw  material  her  industries  use 

4  Karl  Marx,  Free  Trade  (Brussels,  January  9,  1848),  p.  31. 
Marx  says: 

"The  English  workinjjmen  have  appreciated  to  the  fullest  ex- 
tent the  significance  of  the  struggle  between  the  lords  of  the  land 
and  of  capital.  They  know  very  well  that  the  price  of  bread  was 
to  be  reduced  in  order  to  reduce  wages,  and  that  the  profit  of 
capital  would  rise  by  as  much  as  rent  fell. 

''Eicardo,  the  apostle  of  the  English  Free  Traders,  l^e  leading 
economist  of  our  century,  entirely  agrees  with  the  workers  upon 
this  point. 

*'In  this  celebrated  work  upon  Political  Economy  he  says:  *If 
instead  of  growing  our  own  corn  .  .  .we  discover  a  new  market 
from  which  we  can  supply  ourselves  ...  at  a  cheaper  price, 
wages  will  fall  and  profits  rise.  The  fall  in  the  price  of  agricul- 
tural produce  reduces  the  wages^  not  only  of  the  laborer  employed 
in  cultivating  the  soil,  but  also  of  all  those  employed  in  commerce 
or  manufacture.'  " 

113 


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COMMERCIAL  POLICY 

must  come  from  abroad,  and  foreign  markets  are  essen- 
tial to  their  prosperity.  Although  the  war  has  demon- 
strated the  limitations  of  free  trade  even  for  Great 
Britain  and  has  led  her  to  consider  protective  measures, 
it  is  probable  that  for  a  long  time  to  come  British  states- 
men will  consider  that  as  a  general  policy  their  country's 
welfare  depends  upon  free  trade  among  the  nations.  To 
her  and  to  other  nations  similarly  situated  (The  Nether- 
lands, for  example)  the  policy  of  free  trade  will  seem 
best  adapted  to  their  national  needs. 

Free-trade  economists  have  frequently  urged  in  sup- 
port of  their  doctrine  that  it  prevents  wars,  but  the  free 
movement  of  goods  in  international  trade  is  not  neces- 
sarily a  guarantee  of  peace.  Rather  it  may  stimulate 
hostility  by  forcing  manufacturers  to  seek  foreign 
markets  where  they  come  in  conflict  with  the  competition 
of  foreign  rivals.  The  fallacy  in  the  argument  that  free 
trade  brings  peace  is  in  the  assumption  that  the  interests 
of  nations  are  always  complementary  and  that  inter- 
national division  of  labor  will  work  without  friction. 
Society  is  not  a  machine,  and  it  cannot  be  treated  as  a 
machine.  The  interests  of  nations  are  sometimes  antago- 
nistic, and  they  would  continue  to  be  so  at  times  under 
universal  free  trade  as  they  are  in  a  world  of  tariffs. 

Free  traders  have  frequently  admitted  the  validity 
of  the  infant-industry  and  military  arguments  for  pro- 
tection,  J)ut  have  insisted  that  in.  so  far  as  a  nation 
applies  them,  it  sacrifices  wealth  to  defense  or  to  the 
(faint)  possibility  of  an  offsetting  gain  in  the  future. 
They  hold  that  protection  penalizes  the  efficient  to  sup- 
port the  inefficient  industries,  and  that  if  individual 
effort  were  allowed  free  play,  it  would  apply  itself  to 
those  industries  in  which  the  nation  has  a  natural  advan- 

114 


EQUALIZING  CONDITIONS  OF  COMPETITION 

tage,  and  the  maximum  national  wealth  would  be  the 
result.  At  the  very  outset  a  serious  objection  to  this 
position  is  that  individual  effort  does  not  operate  quickly 
and  freely'.  It  is  restrained  on  the  one  hand  by  psycho- 
logical factors  —  fear,  habit,  and  reluctance,  and  on  the 
other  by  the  designs  and  plans  of  man.  But  the  advocate 
of  protection  does  not  press  this  objection;  he  takes 
issue  with  the  conclusion  that  the  interference  of  govern- 
ment with  industry  tends  to  reduce  national  wealth. 
That  free  trade  is  the  most  desirable  method  for  develop- 
ing the  productive  powers  of  Great  Britain  is  no  reason 
why  it  is  so  for  all  other  countries.  Other  nations  whose 
economic  advantage  lies  not  primarily  in  the  extension 
of  overseas  trade  but  rather  in  the  turning  of  vast 
natural  resources  into  manufactured  goods  may  hold 
with  propriety  to  a  different  theory  of  international 
trade.  The  United  States  and  Germany,  for  example, 
have  chosen  to  diversify  their  economic  life  by  means 
of  tariffs,  stimulating  the  growth  of  industries  which 
without  protective  measures  would  have  developed 
slowly,  if  at  all,  in  competition  with  the  British  export 
industries;  and  it  would  hardly  be  safe  to  venture  the 
assertion  that  these  nations  have  shown  a  less  productive 
capacity  than  has  Great  Britain,  or  that  they  are  less 
wealthy  today  than  they  would  have  been  had  they 
adopted  free  trade.  More  important  than  the  immediate 
availability  of  goods  for  consumption  which  the  free- 
trade  school  emphasizes  is  the  productive  capacity  of  a 
nation.  It  is  upon  the  latter  that  the  wealth  of  a  people 
really  depends. 

In  what  sort  of  society  then  does  the  productive 
capacity  of  a  people  attain  its  maximum  1  The  advocate 
of  protection  answers  that  it  is  in  a  well  balanced,  com- 
plex society,  in  which  both  agriculture  and  manufactur- 


,' 


M 

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COMMERCIAL  POLICY 

ing  are  given  their  proper  places.  Diversity  in  produc- 
tion and  population,  he  contends,  produces  not  only  a 
more  wholesome,  but  a  wealthier  nation.  It  is  no  answer 
to  this  position  to  point  out  that  there  are  individual 
industries  that  could  not  exist  under  free  trade.  Viewed 
as  separate  economic  units  this  may  be  true,  but  as  a 
part  of  the  national  system  of  production  it  is  not  neces- 
sarily true.  The  stimulus  of  diversified  interests,  acting 
and  reacting  on  each  other,  calls  into  play  resources  of 
mind  that  could  not  be  developed  in  a  simpler  society.** 

Alexander  Hamilton  has  indicated  the  principles  upon 
which  any  sound  system  of  protection  must  rest.  His 
chief  argument  for  protection  was  based  on  the  proposi- 
tion that  diversification  of  industry  increases  the  power 
and  wealth  of  the  nation.  **The  aggregate  prosperity 
of  manufactures  and  the  aggregate  prosperity  of  agri- 
culture,'' he  says,«  ''are  intimately  connected."  Ham- 
ilton w^as  interested  in  discovering  in  what  form  of 
society  the  largest  number  of  human  talents  would  be 
brought  into  play  and  the  greatest  quantity  of  activity 
stimulated.     He  wrote  again  -J 

Wlien  it  is  considered  .  .  .  ,  that  the  results  of  human 
enterprise  and  exertion  are  immensely  augmented  by  the 
diversification  of  their  objects;  that  there  is  a  reciprocal  re- 
action of  the  various  species  of  industry  upon  each  other 
mutually  beneficial,  and  conducive  to  general  prosperity,  it 
must  appear  probable  that  the  interests  of  a  community  will 
be  most  effectually  promoted  by  diversifying  the  industrious 
pursuits  of  its  members  and  by  regulating  the  political 
economy  so  that  those  who  have  been  particularly  qualified  by 
nature  for  arts  and  manufactures  may  find  the  encouragement 
necessary  to  call  forth  and  reward  their  peculiar  talents. 

5  Cf.  F.  List,  Das  nationale  System  der  politischen  CEJconomie 
and  M.  E.  Hirst,  Life  of  Fnedrich  List.  ' 

8  "Report  on  Manufactures,"  1791,  Works  of  Hamilton,  vol  iv 
p.  139.  * 

7W.  S.  Culbertson,  Alexander  Hamilton,  p.  146. 

116 


EQUALIZING  CONDITIONS  OF  COMPETITION 


It  was  Hamilton's  belief  that  the  enlargement  of  the 
field  of  enterprise  would  bring  into  action  many  avail- 
able powers  which  would  remain  latent  in  a  more  homo- 
geneous form  of  society.  By  encouraging  manufactures 
it  was  his  belief  that  men  would  be  stimulated  to  new 
ambitions  to  produce  wealth.     He  says  :^ 

To  cherish  and  stimulate  the  activity  of  the  human  mind 
by  multiplying  the  objects  of  enterprise  is  not  among  the 
least  considerable  of  the  expedients  by  which  the  wealth  of  a 
nation  may  be  promoted.  Even  things  in  themselves  not 
positively  advantageous  sometimes  become  so,  by  their  ten- 
dency to  provoke  exertion.  Every  new  scene  which  is  open 
to  the  busy  nature  of  man  to  rouse  and  exert  itself,  is  the 
addition  of  a  new  energy  to  the  general  stock  of  effort. 

The  spirit  of  enterprise,  useful  and  prolific  as  it  is,  must 
necessarily  be  contracted  or. expanded,  in  proportion  to  the 
simplicity  or  variety  of  the  occupations  and  productions  which 
are  to  be  found  in  a  society.  It  must  be  less  in  a  nation  of 
mere  cultivators,  than  in  a  nation  of  cultivators  and  merchants ; 
less  in  a  nation  of  cultivators  and  merchants  than  in  a  nation 
of  cultivators,  artificers,  and  merchants. 

Having  determined  upon  what  industries  are  desirable, 
either  on  the  infant-industry,  military,  or  diversification 
and  productivity  arguments,  it  becomes  necessary  to 
measure  their  competitive  strength  as  compared  with 
their  foreign  competitors.  In  some  cases  no  tariff  will 
be  necessary ;  in  others  it  will  be  necessary  to  equalize 
competitive  conditions  and  to  allow  in  addition  a  fair 
margin  to  care  for  inevitable  fluctuations  of  industry 
and  commerce.  The  competitive  strength  of  an  industry 
depends  upon  a  great  variety  of  complex  factor^.  Tariff 
problems  so  far  as  they  relate  to  production  are  also 
industrial  problems.  They  comprehend  the  availability 
of   raw   materials;    freight   rates,   transportation,    and 

8  '^Report  on  Manufactures,"  1791,  Worlcs  of  Hamilton,  vol.  iv, 
p.  »4. 

117 


9 


i|i 


it 

ii 


COMMERCIAL  POLICY 

proximity  to  markets;  the  supply  of  capital,  business 
organization  and  management,  technical  progress  and 
the  development  of  scientific  research;  patents  and 
processes;  the  use  or  absence  of  machinery,  automatic 
or  otherwise ;  the  amount,  adaptability,  skill,  and  organi- 
zation of  labor ;  and  government  taxes,  restrictions,  co- 
operation and  assistance. 

How  then  shall  the  competitive  strength  of  nations 
be  measured  ?  It  is  here  that  a  study  of  the  cost  of  pro- 
duction is  of  service.  ''Cost,"  it  should  be  said  at  the 
outset,  may  refer  to  the  monetary  outlay  necessary  to 
put  a  commodity  on  the  market,  or  it  may  refer  to  a  very 
different  thing  — the  actual  labor-pain  and  sacrifice  in- 
volved  in  production.  Dr.  F.  W.  Taussig  has  thus 
expressed  this  distinction :» 

These  various  outlays,  or  equivalents  of  outlay,  are  some- 
times spoken  of  as  "  expenses  of  production."      When  that 
tei-m  IS  used  and  is  distinguished  from  "  cost  of  production  " 
emphasis  is  laid  on  the  fact  that  the  employing  capitalist  is 
concerned  solely  with  what  he  pays  for  labor,  for  materials, 
for  the  use  of  free  or  fixed  capital.     When,  on  the  other  hand, 
the  term  cost  of  production  is  used  so  as  to  imply  a  distinction 
from  expenses  of  production,  reference  is  made  to  the  sacrifices 
undergone;  to  the  labor  of  the  hired  workman,  and  not  to  his 
wages;  to  the  trouble,  anxiety,  and  work  of  superintendence 
of  the  employer,  not  to  his  profits  or  ordinary  gains;  to  the 
previous  saving  by  which  the  capital  has  been  accumulated, 
not  to  the  interest  on  that  capital.     As  will  be  seen  at  a  later 
stage,  some  of  the  most  important  and  difiicult  problems  of 
economics  connect  themselves  with  the  distinction  between  cost 
of  production  in  the  sense  of  labor  and  sacrifice,  and  expenses 
of  production  in  the  sense  of  outlays. 

Each  of  these  ideas  must  be  considered  in  the  ultimate 
determination  of  the  tariff  question.    The  actual  sacrifice 

' —  

»  Principles  of  Economics,  vol.  i,  p.  172. 

118 


EQUALIZING  CONDITIONS  OF  COMPETITION 

of  the  laborer,  manager,  and  capitalist  is  a  factor  to  be 
considered  in  determining  whether  or  not  a  given  in- 
dustry is  to  receive  protection.  But  monetary  costs  are 
helpful  in  determining  the  ability  of  an  industry  to 
compete.  The  expense  of  producing  a  given  product 
reflects  the  composite  strength  of  the  industry,  taking 
into  account  the  different  competitive  factors  which  have 
been  mentioned. 

The  term  "cost  of  production"  embraces,  in  the  first 
place,  the  cost  of  materials.  If  an  industry  has  nearby 
a  plentiful  supply  of  raw  material,  its  material  cost, 
other  things  being  equal,  will  be  less  than  the  cost  to  a 
competitor  that  must  transport  its  raw  material  from  a 
great  distance.  In  like  manner,  if  the  quality  of  raw 
material  —  quicksilver  ore,  for  example  —  is  poor  in  one 
country,  the  material  cost  will  be  greater  per  unit  of 
finished  product  than  in  the  competing  country  where 
the  quality  of  the  raw  material  is  superior. 

In  the  next  place,  cost  of  production  embraces  labor 
cost.  In  a  study  of  the  comparative  position  of  nations, 
it  is  necessary  to  determine  the  labor  cost  per  unit  of 
product  produced.  Wage  scales  are  significant  in  the 
study  of  the  living  conditions  of  different  peoples  and  in 
determining  ultimately  the  question  whether  from  a 
social  standpoint  a  tariff  is  desirable  in  a  particular  in- 
dustry, but  in  studying  the  competitive  condition  in  an 
industry  —  its  ability  to  compete  in  the  production  of  a 
given  product,  the  more  pertinent  consideration  is  the 
labor  cost  per  unit  of  product.  Economic  writers  of 
free-trade  leanings  have  asserted  that  it  is  not  the  low- 
wage  but  the  high-wage  countries  that  are  to  be  feared 
in  competition.  Efficiency  in  the  latter  case,  it  is  said, 
is  the  cause  of,  and  makes  up  for,  the  difference  in  wages 
paid  to  the  individual.      On  the  other  hand,  in  tariff 

119 


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COMMERCIAL  POLICY 

controversies  before  Congress  comparative  wage  scales 
have  been  presented  as  conclusive  arguments  for  the 
protection  of  American  industry.  It  has  been  shown 
that  wages  in  foreign  countries  are  generally  lower,  and 
sometimes  very  much  lower,  than  wages  in  the  United 
States.  These  facts  have  been  used  ostensibly  to  argue 
for  the  protection  of  American  labor,  but  in  fact  as 
arguments  for  the  protection  of  American  industry. 
We  know  that  wages  per  laborer  are  less  in  most  foreign 
countries  than  they  are  in  the  United  States.  Important 
as  these  comparisons  may  be  from  a  social  point  of  view, 
their  value  for  measuring  competitive  conditions  is  not 
so  great  as  the  labor  cost  per  unit  of  product.  It  is  con- 
ceivable that  because  of  the  high  efficiency  of  American 
labor,  supplemented  by  American  machinery,  in  some  in- 
dustries, the  labor  cost  per  unit  of  product  might  be  less 
here  than  in  a  given  foreign  country  at  the  same  time 
that  wages  per  man  are  higher.  The  answer  to  both  of 
these  questions  is  in  a  study  of  costs  per  unit  of  product 
in  which  the  wages  paid  and  the  efficiency  of  laborers,  of 
the  machines  on  which  they  work,  and  of  the  direction 
of  their  efforts  will  all  be  taken  into  consideration. 

Finally,  cost  of  production  embraces  the  so-called  over- 
head expenses  or  ** burden.**  In  them  are  included  the 
expenditure  for  taxes,  managers*  salaries,  general  re- 
pair, clerical  labor,  depreciation,  and  sometimes  rent  and 
interest.  They  will  reflect  technical,  financial,  or  mana- 
gerial advantages  as  the  result  of  which  an  industry  may 
have  a  lower  cost  per  unit  of  product.  Although  a  de- 
tailed discussion  of  the  many  factors  in  cost  accounting 
need  not  here  be  entered  upon,  something  should  be  said 
in  respect  to  interest.  There  is  an  important  reason  why 
interest  should  be  included  in  the  cost  of  production  for 
purposes  of  comparison  with  foreign  costs,  and  that  is 

120 


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EQUALIZING  CONDITIONS  OF  COMPETITION 

the  fact  that  a  commodity  may  be  made  in  one  country 
largely  by  hand  labor  with  the  use  of  little  productive 
capital,  whereas  in  another  country  the  product  may  be 
made  by  machinery  with  the  use  of  little  labor.  In  such 
a  situation  it  obviously  would  be  unfair  not  to  take  into 
consideration  the  large  interest  charges  upon  capital  in- 
vestment in  the  one  country  as  compared  with  the  other. 
Just  as  one  may  not  adequately  compare  the  efficiency 
of  two  departments  in  a  factory,  one  of  which  uses  hand 
processes  and  the  other  mechanical  processes,  without 
counting  interest  upon  the  capital  tied  up  in  machinery, 
so  likewise  one  cannot  compare  the  efficiency  of  indus- 
tries as  between  nations  without  taking  into  considera- 
tion the  interest  charges  in  each  case. 

Objections  have  been  made  to  the  use  of  cost  of  pro- 
duction as  an  aid  in  tariff  making,  usually  without 
suggesting  any  concrete  substitute.      It   is  said  that 
definite  costs  cannot  be  obtained,  and  that  because  they 
vary  so  from  factory  to  factory,  they  are  of  compara- 
tively little  value.     But  costs  are  no  more  uncertain  and 
do  not  vary  more  than  does  industrial  life  as  a  whole. 
Variety  and  difference  are  inherent  in  the  problem. 
Cost  accounting  is  a  scientific  attempt  to  measure  the 
uncertainty  and  change  in  industrial  life,  and  by  meas- 
uring the  variations  it  tends  to  bring  about  greater  cer- 
tainty and  greater  uniformity.-^     If  cost  accounting  is 
rejected  as  one  of  the  media  through  which  comparative 
competitive  data  are  to  be  obtained,  we  abandon  one  of 
the  best.     Alone  it  is  not  adequate,  but  it  measures  with 
a  common  comparable  measure  the  many  complex  com- 
petitive factors  which  enter  into  production.     Incident 
to  any  cost  investigation,  of  course,  is  a  careful  examina- 
tion of  a  large  amount  of  collateral  data  relating  to 

competitive  conditions. 

121 


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COMMERCIAL  POLICY 

Theoretical  accuracy  in  cost  accounting,  important  for 
the  manufacturer,  is  unnecessary  for  tariff  purposes. 
Although  a  two  per  cent,  error  in  costs  may  be  objection- 
able from  the  standpoint  of  the  manufacturer,  it  is  of 
slight  importance  to  the  legislator  who  is  hesitating  be- 
tween a  duty  of  25  per  cent,  and  35  per  cent.  Many 
of  the  technical  difficulties  of  exact  cost  accounting  — 
interest,  the  rate  of  depreciation,  the  allocation  of  over- 
head and  general  expenses,  and  the  capital  vs,  reve- 
nue problem,  need  not  be  worked  out  to  the  limit 
of  scientific  accuracy.  In  the  pulp  and  paper  report  of 
the  Tariff  Board  under  the  administration  of  President 
Taft,  for  example,  an  arbitrary  figure  for  depreciation 
was  adopted  after  careful  consultation  with  two  leading 
engineering  concerns  in  that  industry.^**  The  cost  prob- 
lem is,  in  fact,  not  so  difficult  as  it  seems  to  the  expert, 
because,  in  the  first  place,  a  fairly  accurate  approxima- 
tion is  possible,  and  in  the  second  place,  an  approxima- 
tion is  entirely  adequate  for  tariff  purposes. 

The  gathering  of  comparative  cost  data  is  really  the 
function  of  an  international  commission  such  as  will  be 
discussed  subsequently.^^  But  it  is  not  beyond  the 
ability  of  a  domestic  commission  to  get  foreign  costs 
sufficiently  accurate  for  tariff  purposes.  The  United 
States  Tariff  Commission  has  power  to  investigate  the 
"conditions,  causes,  and  effects  relating  to  competition 
of  foreign  industries  with  those  of  the  United  States, 
including  dumping,  and  cost  of  production.  "^^  ^^j.  qq^_ 

ditions  have  prevented  the  Tariff  Commission  from  mak- 


10  <' Report  on  the  Pulp  and  Newsprint  Paper  Industry''  (1911), 
pp.  24  and  73. 

1 1  Chapter  XVI. 

12  8ee  the  Act  creating  the  Tariflf  Commission,  Sec.  704,  printed 
in  Appendix  IV. 

122 


EQUALIZING  CONDITIONS  OF  COMPETITION 

ing  any  extended  investigations  abroad,  but  some  in- 
teresting comparisons  are  found  in  a  study  of  the  sugar 

industry.^® 

Sugar  is  essentially  an  agricultural  product,  and  like 
other  agricultural  products  is  subject  to  the  law  of  vary- 
ing costs.     In  the  domestic  beet-sugar  industry,  as  in 
the  cane-sugar  industry  in  Cuba,  Hawaii,  Louisiana,  and 
Porto  Rico,  there  are  competing  factories  producing  at 
widely  varying  costs  per  ton  of  sugar  produced,  and  the 
forces  of  demand  and  supply,  far  from  tending  to  reduce 
all  of  these  varying  costs  to  a  common  level,  tend  rather 
to  increase  the  disparity  between  the  highest-  and  lowest- 
cost  producers  who  can  continue  to  compete  in  the  same 
market.      Leaving  out  of  consideration  a  small  per- 
centage  of   abnormally  high-cost   concerns  which   the 
forces  of  competition  are  in  fact  tending  to  eliminate, 
there  will,  therefore,  be  found  in  each  region  a  *' mar- 
ginal'' firm  whose  costs  are  such  as  to  leave  it  a  bare 
living  profit  and  many  lower-cost  firms  that  receive  a 
progressively    greater    and   greater    profit,    technically 
known  as  ''economic  rent."      It  is  obvious,  therefore, 
that  it  is  only  the  marginal  firms  whose  costs  must  be 
met  by  the  prevailing  price  in  order  that  they  may  sur- 
vive.     All  of  the  others  can  suffer  a  greater  or  less 
diminution  in  price  and  still  do  a  profitable  business. 

The  table  on  page  124  shows  the  output  and  cost  per 
ton  of  sugar  produced  for  beet-sugar  factories  in  the 
continental  United  States  and  for  cane-sugar  factories  in 
Cuba  for  1916-17. 

These  statistics  are  cited  here  merely  to  illustrate  how 
costs  may  be  of  service  in  tariff  making.  The  sugar 
tariff  should  not  be  determined  from  this  table.      The 

13  United  States  Tariff  Commission,  '*  Costs  of  Production  in 
the  Sugar  Industry. ' ' 

123 


ii! 


'II 


COMMERCIAL  POLICY 

Output  and  Cost  of  Production  per  Ton  op  Sugar  Produced 
FOR  Beet  Sugar  Factories  in  the  Continental  United  States 

AND  FOR  CaNE-SUGAR  FACTORIES  IN  CUBA,  CLASSIFIED  BY  COSTS  IN 

Groups  of  Five  for  the  Year  1916-17 


Group 


1 

2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
IS 
14 
15 
16 
17 
18 
19 
20 
21 


Output 


Beet  Sugar, 

United  States, 

short  tons 

178,705 
78,485 
102,066 
83,123 
54,765 
63,443 
51,743 
40,028 
43,120 
46,228 
29,467 
28,669 
16,686 
12,312 
6,026 


Cuba 


442,750 

489,645 

136,615 

94,330 

151,812 

286,145 

289,509 

157,958 

196,583 

146,689 

106,235 

117,221 

85,176 

55,238 

120,091 

154,707 

92,734 

60,400 

82,062 

81,309 

39,357 


Cost  per  Ton^ 


Beet  Sugrar, 
United  States 

$47.31 
56.38 
59.51 
61.90 
62.96 
63.94 
66.50 
68.42 
71.95 
74.92 
76.39 
80.29 
88.76 
99.38 

123.48 


Cuba 


$44.57 
45.31 
49.70 
50.58 
51.23 
52.46 
60.04 
63.09 
64.54 
66.77 
67.33 
68.07 
68.94 
69.41 
70.49 
71.33 
73.27 
73.05 
73.71 
76.02 
78.65 


•  Cuban  sugars  are  raw  and  beet  sugar  is  granulated.  Before 
being  entered  in  the  column  the  costs  of  the  granulated  beet  sugar 
as  computed  from  original  data  were  reduced  bj  the  estimated 
difference  in  cost  of  producing  raw  and  granulated  sugar. 

year  1916-17  was  an  abnormal  one  and  the  figures  of  a 
pre-war  year  should  be  considered  also.  They  would 
show  a  wider  difference  between  domestic  and  Cuban 
costs.  We  import  from  Cuba  about  one-half  of  our 
annual  sugar  consumption,  and  it  is  the  cost  of  the  Cuban 
marginal  producer  that  is  reflected  in  the  New  York  price. 
Importations  from  other  foreign  countries  are  negligible, 
and  although  they  would  increase  if  Cuba's  preferential 

124 


EQUALIZING  CONDITIONS  OF  COMPETITION 

rate  were  removed,  they  would  not  be  a  more  serious 
factor  in  competition  than  the  Cuban  sugar. 

How  the  costs  in  the  table  are  to  be  used  in  tariff 
making  depends  on  policy.     Representative  factories  in 
the  United  States  and  Cuba  might  be  determined  upon 
and  the  tariff  fixed  to  cover  their  difference  in  costs  with 
a  fair  margin.      Or  it  may  be  decided  what  marginal 
American  producer  should  in  the  circumstances  be  al- 
lowed to  continue  in  business  and  the  tariff  fixed  at  such 
a  point  as  will  protect  him.      In  the  table  the  Cuban 
marginal  cost   ($78.65)   lies  between  the  costs  of  the 
eleventh  and  twelfth  group  in  the  American  cost  column. 
Assuming  that  the  figures  in  the  foregoing  table  alone 
were  used  for  determining  the  tariff  rates,  if  the  present 
tariff  were  removed  and  the  price  fell  to  the  cost  of  the 
Cuban  marginal  producer,  the  American  factories  in  the 
first  11  groups  would,  other  things  being  equal,  be  able 
to  survive  and  the  others  would  be  eliminated.      But 
other  things  would  not  be  equal.      If  some  American 
producers  were  forced  out,  new  Cuban  producers  would 
take  their  place,  the  Cuban  marginal  cost  would  rise, 
and  more  American  factories  would  be  able  to  stay  in 
business.     Also  if  the  tariff  were  removed  and  the  price 
of  sugar  fell  in  the  domestic  market,  its  consumption 
would  increase  and  the  fall  in  price  would  not  corre- 
spond in  amount  to  the  duty  removed.     Other  factors, 
however,  should  be  considered  likewise.      Statistics,  as 
has  been  said,  are  only  of  service  in  tariff  making  when 
used  with  judgment  and  commonsense.     The  tariff  is  not 
a  problem  in  mathematics. 

To  obtain  cost  data  from  abroad  is  difficult  but  not 
impossible.  Only  in  exceptional  cases,  it  is  true,  is  it 
possible  to  examine  the  actual  cost  sheets  of  foreign  con- 
cerns, but  an  intelligent  study  by  men  trained  in  eco- 

125 


I' 


I 


COMMERCIAL  POLICY 

nomics  and  accounting  methods  of  the  competitive 
facta  in  foreign  countries  will  enable  them  to  draw  con- 
clusions sufficiently  accurate  for  tariff  purposes.  In 
almost  every  case  information  is  available  upon  the 
sources  and  prices  of  raw  materials,  wage  scales,  and  the 
general  efficiency  of  labor,  the  amount  of  machinery 
used,  the  hours  which  employees  work,  and  the  general 
facts  about  overhead  expenses. 

One  of  the  most  successful  studies  of  comparative  costs 
of  production  was  made  by  the  Taft  Tariff  Board  in 
studying  the  cost  of  producing  cotton  yarns  in  the 
United  States  and  Great  Britain.^*  As  an  illustration 
of  the  results  obtained,  the  comparison  of  yarn  conver- 
sion costs^^  in  England  and  the  United  States  is  given 
in  the  table  on  the  opposite  page.^« 

Elaborate  comparative  data  on  cost  of  production  were 
also  obtained  by  the  Taft  Tariff  Board  on  wool  growing 
and  on  the  manufacture  of  tops,  woolen  and  worsted 
yarn  and  cloth,  and  ready-made  clothing.^^  The  appli- 
cation of  these  data  to  wool  legislation  proposed  in  the 
second  session  of  the  Sixty-second  Congress  is  made  in 
an  article  reprinted  as  an  appendix  to  this  volume.^® 
To  take  an  example  here :  Sample  No.  28  on  which  the 
Tariff  Board  obtained  comparative  costs  was  a  man's 
fancy  woolen  suiting  weighing  13  ounces  per  yard.  The 
costs  are  on  the  basis  of  one  pound  of  cloth,  and  the 
differences  between  this  country  and  Great  Britain  are 
given.      The  difference  in  the  conversion  cost  for  mak- 

c,  "''/^^l^^oJ^  Manufactures,''  H.  R.  Doc.  No.  643,  63d  Cong.  1st 
Sess.  (1913),  vol.  ii,  pp.  398-426.  ^ 

*u^^i^^°7T^®°  ^®^*  ^^  *^®  ^^^*  ®^  converting  the  raw  material  into 
the  finished  product  and  does  not  include  cost  of  raw  materials 
i«Op.  cit,  p.  414. 

17 '<  Wool  and  Manufactures  of  WooP*  in  four  volumes,  H.  B. 
Doc.  No.  342,  62d  Cong.,  2d  Sess.  (1912).  ' 

i»  Appendix  V. 

126 


EQUALIZING  CONDITIONS  OF  COMPETITION 

Comparative  Cotton- Yarn  Conversion  Costs  in  England  and 

THE  United  States 


Yarn 

Where 
made 

Labor 
Cost 

Other 
Costs 

Total 

Conversion 

Cest 

Warp  No.  30: 

Mule 

England 

$0.013628 

$0.011092 

$0.024720 

King 

U.S. 

.016710 

.019583 

.036293 

English,  per  cent 

, 

of  American 

81.56 

56.64 

68.11 

Warp  No.  40: 

Mule 

England 

.019468 

.015846 

.035314 

Ring 

U.S. 

.024185 

.028343 

.052528 

English,  per  cent 

of  American 

80.50 

56.90 

67.23 

Warp  No.  50: 

Mule 

England 

.026207 

.021321 

.047538 

Ring 

U.S. 

.033420 

.032167 

.072587 

English,  per  cent 

of  American 

78.42 

54.43 

65.49 

Filling  No.  30: 

Mule 

England 

.013538 

.011018 

.024556 

Ring 

U.S. 

.014194 

.016636 

.030830 

English,  per  cent 

of  American 

95.38 

66.16 

79.65 

Filling  No.  40 : 

Mule 

England 

.019124 

.015565 

.034689 

Ring 

U.S. 

.020769 

.024341 

.045110 

English,  per  cent 

of  American 

92.08 

63.96 

76.90 

Filling  No.  50 : 

Mule 

England 

.025616 

.023550 

.046466 

Ring 

U.S. 

.028720 

.033650 

.062378 

English,  per  cent 

of  American 

89.19 

69.98 

74.41 

Filling  No.  60 : 

Mule 

England 

.033109 

.016948 

.060057 

Ring 

U.S. 

.036762 

.043022 

.079845 

English,  per  cent 

of  American 

90.06 

39.39 

75.22 

Filling  No.  70: 

Mule 

England 

.041828 

.034034 

.075872 

Ring 

U.S. 

.046534 

.054537 

.101071 

English,  per  cent 

of  American 

89.89 

62.40 

75   07 

127 


COMMERCIAL  POLICY 


! 


I 


It 


ing  the  top  in  a  pound  of  cloth  was  $0.0049,  for  yarn 
$0,057,  and  for  cloth  $0.18,  making  a  total  difference  of 
$0.2419  in  the  conversion  cost  of  one  pound  of  the  speci- 
fied cloth.  Its  price  was  estimated  at  $0.59  per  pound. 
The  ad  valorem  tariff  rate  then  necessary  in  the  case  of 
that  sample  to  equalize  the  difference  in  cost  of  pro- 
duction was  41  per  cent.^^ 

In  case  foreign  costs  cannot  be  obtained,  foreign  prices 
may  be  available,  and  with  them  at  hand  significant 
comparisons  may  be  made  for  tariff  purposes.     In  fact, 
although  the  study  of  domestic  costs  is  essential,  the 
securing  of  foreign  costs  is  not.     It  is  the  price  of  the 
foreign  exporter,  not  his  cost,  that  the  domestic  pro- 
ducer must  meet.      Even  if  the  amount  the  foreign 
producer  pays  out  as  a  matter  of  cost  cannot  be  obtained, 
the  price  he  sells  his  goods  for  can  be  obtained,  and  the 
question  is,  can  the  home  producer  meet  this  competi- 
tion?    This  question  cannot  be  answered  without  know- 
ing domestic  costs.    Domestic  prices  disclose  what  a  pro- 
ducer does  sell  his  goods  for,  not  the  minimum  amount 
that  he  must  have  to  stay  in  business.     Although  a  com- 
parison between   domestic   costs   and   foreign   costs   is 
highly  desirable,  when  obtainable,  and  even  a  compari- 
son of  domestic  and  foreign  prices  may  be  helpful,  the 
fundamental  question  is  touched  by  a  comparison  be^ 
tween  domestic  costs  and  foreign  prices. 

A  danger  must  not  be  forgotten  in  collecting  foreign 
prices.  Prices  selected  should  represent  the  normal 
competitive  strength  of  the  foreign  industry  in  its  prin- 
cipal market.  Dumping  prices  present  a  special  tariff 
problem,  dealt  with  in  a  later  chapter.^^    Factory  prices, 

19  Appendix  V,  Table  10.    Many  other  cases  and  the  method  of 
their  computation  are  contained  in  this  article. 

20  Chapter  VIII. 

32S 


EQUALIZING  CONDITIONS  OF  COMPETITION 

uncomplicated  by  middlemen 's  profits  and  commissions, 
are  desirable.  Trade  discounts,  if  they  exist,  should  be 
allowed  for. 


A  study  of  domestic  costs  may  be  useful  for  tariff  pur- 
poses even  if  neither  foreign  costs  nor  foreign  prices  can 
be  obtained  for  making  comparisons.  If  the  domestic 
conversion  costs  are  known,  they  at  least  indicate  the 
maximum  tariff  duty.  No  one  advocates  that  the  tariff 
should  amount  to  the  total  cost  of  the  American  product. 
Usually  all  that  is  asked  is  a  tariff  sufficient  to  equalize 
the  difference  with  a  fair  margin. 

In  the  debate  on  the  Tariff  Act  of  1913  Senator  Kobert 
M.  La  Follette  used  the  cost  figures  of  the  Taft  Tariff 
Board    on    cotton    cloths    in    this    way.^i       His    most 
important  table,  given  as  an  appendix  to  this  volume," 
reproduces   the   domestic   conversion   cost   on  the   100 
cotton  fabrics  investigated  by  the   Tariff  Board  and 
compares  them  with  duties  in  the  Payne- Aldrich  Tariff 
Act,  in  the  bill  then  pending  before  the  Senate,  and 
in  his  proposed  substitute  bill.      Sample  No.  34,  for 
example,   was   fancy  white   goods,   8.47  square   yards 
to  the  pound,  bleached.      Its  total  American  conver- 
sion  cost  per  square  yard  was  $0.0699,  and  the  total 
English  selling  price  per  square  yard,  on  which  duty 
would  be  assessed  if  it  were  imported,  was  $0.1968. 
The  Payne-Aldrich  Act  duty  was  specific,  and  on  this 
fabric  amounted  to  $0.11.     The  Senate  bill  proposed  30 
per  cent,  ad  valorem  on  this  fabric,  and  at  the  price  then 


Septembr'/^^^^^^^^  '^'  ^';./'J^^   ^«^g-    !«*   ^^ss., 

oepiemoer  y,  iyi3,  p.  4589  et  seq.      Cf.  Tariff  Board    ^'P^ffni, 

^442  ef.T''  ""•  ''•  '""'■  '"'•  '"'  ''*  <^-S   2d  lei  ^mi^, 
22  Appendix  VI. 

129 


<i 


f 

it 


COMMERCIAL  POLICY 

prevailing  the  duty  would  have  been  $0,059.  The  La 
Follette  bill  proposed  25  per  cent,  ad  valorem,  or  a  duty 
on  the  prevailing  price  of  $0.0492. 

Before  leaving  the  subject  of  how  the  amount  of  tariff 
may  be  determined  it  should  be  said  that  elaborate  de- 
tailed cost  and  price  studies  are  not  necessary  in  the 
case  of  every  article  affected.  Less  comprehensive  data 
on  the  majority  of  articles  will  be  adequate  to  enable 
Congress  to  determine  rates  as  well  as  policy.  A  careful 
industrial  survey  such  as  the  Tariff  Commission  is  mak- 
ing in  its  Tariff  Information  Catalog^^  —  including  a 
general  description  of  the  article,  amount  and  locality  of 
its  production,  imports  and  exports,  processes,  uses,  and 
other  data  readily  obtained  —  will  in  the  case  of  hun- 
dreds of  tariff  items  dispose  of  the  question  of  the  tariff. 
Such  an  encyclopedic  survey  is  highly  important  and 
will  contribute  decisively  to  scientific  tariff  making. 
But  there  are  a  number  of  highly  contentious  industries 
which  require  a  more  detailed  study  to  determine  their 
competitive  strength.  It  is  in  these  that  the  elaborate 
investigations  of  costs  and  prices  may  be  made  with 
profit. 

The  relation  of  the  tariff  to  labor  standards  has  been 
hinted  at  but  the  reference  should  be  amplified  here. 
Three  attitudes  assumed  by  nations  toward  labor  are 
distinguishable.  In  the  first  place,  labor  may  literally 
be  *^ burnt  up'*  in  the  industrial  process.  Where  the 
labor  supply  is  plentiful  and  docile,  it  may  be  paid  low 
wages,  worked  long  hours  under  unsanitary  conditions, 
and  when  worn  out,  cast  aside  and  a  new  supply  re- 
cruited. In  the  second  place,  labor  may  be  paid  just 
enough  to  keep  up  its  efficiency,  on  the  same  theory  that 

23  U.  S.  Tariff  Commission's  Second  Annual  Report,  1918. 

130 


EQUALIZING  CONDITIONS  OF  COMPETITION 


a  slave  owner  would  keep  his  slaves  in  good  condition, 
that  is,  that  they  may  yield  a  maximum  product.  In 
the  third  place,  labor  may  be  given,  or  it  may  demand, 
not  only  *' subsistence  wages,'*  but  a  surplus  income 
and  leisure  hours  which  may  be  devoted  to  recreation 
and  education.  This  third  standard,  of  course,  is  the 
one  to  which  this  and  every  other  country  should  aspire. 
An  international  agreement  should  be  entered  into  that 
would  tend  to  bring  it  about.^* 

In  some  industries  the  labor  of  the  United  States,  al- 
though it  receives  higher  wages  per  man  than  labor  in 
foreign  competing  industries,  produces  at  a  cheaper 
unit  cost  because  of  natural  advantages,  more  efficient 
machinery,  and  efficiency  in  operation.  It  is  possible 
that  in  some  industries  expensive  labor  may  be  able  to 
produce  goods  that  undersell  the  products  of  low-paid 
labor.  Great  Britain  is  able  to  compete  successfully  in 
some  products  with  Japan.  Thus  far  the  free  trader 
is  satisfied  and  he  would  go  no  further.  But  the  advo- 
cate of  protection  believes  that  the  national  welfare  re- 
quires the  establishment  of  industries  in  which  American 
labor  cannot  compete  on  an  equality  and  maintain  its 
standards.  When  the  industry  to  be  established  is  de- 
termined on  and  when  its  competitive  disadvantage  is 
measured,  a  tariff  is  put  on  foreign  competing  products 
in  order  to  maintain  American  standards  of  living  in 
that  industry  —  and  it  does  it. 

The  maintenance  of  the  American  standard  of  living 
in  the  great  protected  industries  is,  from  a  practical 
standpoint,  a  very  important  argument  for  the  tariff. 
Whatever  American  society  might  have  been  under  free 
trade,  it  is  sure  to  remain  well  diversified  for  some  time 


A  '^endi^ix  ^^  ^'^"^  ""^  *^®  Covenant  of  the  League  of  Nations, 

131 


COiVmERCIAL  POLICY 

to  come.  Tariff  making  at  this  stage  of  our  national 
existence  is  more  a  practical  than  a  theoretical  matter. 
We  have  the  steel  industry,  the  textile  industries,  and 
the  sugar  industry.  We  have  many  others.  Even  if  we 
desired,  they  could  not  be  eliminated  without  results 
detrimental  not  only  to  the  capital  and  labor  directly 
employed,  but  to  the  country  as  a  whole.  Competing 
with  many  of  these  industries  are  industries  in  foreign 
countries  in  which  the  standards  of  labor  are  low  and  in 
which  the  laborers,  although  less  efficient  than  the  Ameri- 
can, are  paid  such  a  small  sum  that  it  would  be  hopeless 
to  attempt  to  compete  with  them.  This  low-paid  labor, 
as  in  India  and  Japan,  has  learned  to  operate  efficiently 
the  machinery  of  the  high-wage  countries.  Congress  is 
usually  confronted  with  the  alternative  of  permitting 
foreign  competition  to  eliminate  certain  American  in- 
dustries or  to  maintain  the  American  standard  of  living 
in  them.  By  maintaining  in  the  protected  industries 
the  American  standards  of  living,  the  advocates  of  pro- 
tection believe  that  they  are  not  only  preserving  our 
social  advancement,  but  also  increasing  the  aggregate 
productive  powers  of  the  nation. 

The  effect  of  the  tariff  on  the  consumer  has  been  fre- 
quently overstated.  The  advocate  of  protection  simply 
takes  the  position  that  in  a  diversified  society  such  as 
protection  produces,  the  individual  gains  more  as  a  pro- 
ducer than  he  loses  as  a  consumer.  It  is  only  in  excep- 
tional cases  that  the  prices  of  goods  are  raised  by  the 
full  amount  of  the  tariff  duty.  Competition  among 
domestic  producers  helps  to  regulate  prices.  High  as 
the  rates  were  in  the  woolen  schedule  of  the  Payne- 
Aldrich  Tariff  Act,  the  manufacturers  were  never  able 
to  raise  their  prices  to  that  extent.      Furthermore,  it 

132 


th 


H 


EQUALIZING  CONDITIONS  OF  COMPETITION 

does  not  always  follow,  as  Mr.  Emery  has  made  clear," 
that  an  increase  in  the  tariff  will  result  in  an  increase  in 
the  consumer's  price.  Through  the  peculiar  method  of 
distribution  prevailing  in  the  United  States,  a  wide 
margin  exists  between  the  mill  price  and  the  price  that 
the  ultimate  consumer  pays.  A  tariff  amounting  to  a 
few  cents  that  equalizes  competitive  conditions  is  of 
great  importance  to  the  producer  who  is  directly  affected, 
but  the  increase  reflected  in  the  mill  price  may  never 
reach  the  consumer  but  may  be  taken  up  by  the  jobber. 
The  tariff  question,  after  all,  is  not  merely  a  concern  of 
the  consumer,  the  manufacturer,  the  laborer,  or  the 
locality ;  it  is  this,  but  it  is  more.  It  is  a  national  ques- 
tion. Class  and  local  interests  may  have  to.  yield  in 
order  that  more  important  interests  may  prevail. 

If  an  excess-profits  tax  should  become  a  permanent 
part  of  our  Federal  finance,  there  is  an  added  reason 
for  making  it  applicable  to  protected  industries.  These 
industries  are  maintained  in  the  United  States  because 
they  are  believed  to  contribute  to  the  national  welfare 
and  strength.  Without  the  tariff,  the  high-cost  (the 
marginal)  factories  could  not  exist,  but  their  existence 
raises  the  price  of  the  goods  and  increases  the  profits  of 
the  more  efficient  concern.  On  these  profits  the  public 
has  a  peculiar  claim,  because  the  industry  earning  them 
does  so  by  virtue  of  a  policy  of  State  aid. 

From  what  has  been  said  the  function  of  the  United 
States  Tariff  Commissions^  in  tariff  making  should  be 
clear.     The  determination  of  tariff  policy  is  not  within 


«H.  C.  Emery,  '^The  Tariff  and  the  Ultimate  Consumer," 
American  Economic  Review,  September,  1915.  Cf.  "Cotton 
Manufactures,"  H.  R.  Doc.  No.  643,  62d  Cong.,  2d  Sees.,  vol.  ii, 
pp.  532-70.  '  ' 

26  Appendix  IV. 

a33 


I  i 


cojvbiercial  policy 

its  duty;  this  belongs  to  the  people  and  to  Congress. 
But  if  it  is  determined  to  levy  a  tariff,  the  Commission 
can  furnish  the  data  on  which  a  tariff  may  be  fixed.  It 
can  measure  the  difference  in  competitive  conditions  and 
place  in  the  hands  of  Congress  the  data  from  which 
policy  may  be  determined.  It  has  ample  powers  to  be 
of  real  and  permanent  service.  It  has  full  authority  to 
call  on  any  person  or  corporation  in  this  country  for 
information,  and  to  conduct  investigations  abroad.  It 
is  authorized  to  investigate  every  phase  of  the  tariff 
question  —  the  administration  of  the  customs  laws,  their 
fiscal  and  industrial  effect,  their  effect  on  labor  and  on 
the  consumer,  and  our  tariff  relations  with  foreign  coun- 
tries, including  commercial  treaties,  *' dumping,'*  and 
general  competitive  conditions.  Its  duty  is  not  to  fix 
or  to  recommend  tariff  rates,  but  to  collect  and  compile 
tariff  information  and  upon  request,  to  cooperate  with 
the  President,  the  Ways  and  Means  Committee  of  the 
House  of  Representatives,  and  the  Finance  Committee 
of  the  Senate  in  determining  the  proper  relation  of  the 
tariff  to  Federal  finance  and  to  American  industry  and 
commerce. 

With  the  exception  of  the  Tariff  Board  under  the  Taf  t 
Administration,  there  has  never  been  in  this  country, 
until  the  creation  of  the  present  Tariff  Commission,  a 
permanent  Government  organization  the  primary  duty 
of  which  was  to  collect  tariff  information  in  a  scientific 
manner.  In  the  past,  when  the  political  situation  dis- 
closed that  a  revision  of  the  tariff  was  imminent,  the 
political  party  in  control  of  Congress  began,  some  time 
in  advance  of  the  meeting  of  Congress,  to  gather  in- 
formation. This  was  done  in  two  ways.  In  the  first 
place,  experts  more  or  less  qualified  for  the  work  were 
employed  to  compile  statistics  and  gather  information 

134 


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EQUALIZING   CONDITIONS  OF  COMPETITION 

upon  the  various  schedules.      In  the  second  place,  the 
Congressional  committees  proceeded  to  hold  hearings. 
It  is  true  that  these  hearings  in  some  cases  brought  out 
valuable  and  pertinent  information,  but  in  almost  every 
instance  the  men  who  appeared  before  the  committees 
to    testify   represented   special    interests   seeking   high 
duties  for  the  protection  of  domestic  industries  or  de- 
sirous of  lessening  duties  in  order  to  enable  them  to 
import   goods   readily   from   abroad.      From   its   very 
nature  the  information  submitted  was  prejudiced  and 
incomplete,  and  the  members  of  Congress  could  have 
little  confidence  in  it.      Too  often  in  the  history  of 
American  politics  tariff  rates  have  been  fixed  on  the 
basis  of  such  unreliable  data.     Without  judiciously  pre- 
pared information  Congress  has  been  confronted  with 
the  dilemma  of  either  guessing  at  the  rates  or  accepting 
those  suggested  by  the  interested  parties  —  the  only  per- 
sons who  could  present  their  case  concretely.      Neither 
individuals  nor  parties  are  to  be  blamed  for  this.      It 
was  a  system  —  adequate  perhaps  in  the  early  days  of 
the  Republic,  when  our  economic  life  was  comparatively 
simple,  but  entirely  inadequate  in  the  complex  indus- 
trial and  commercial  life  of  our  own  day. 

One  of  the  chief  objects  in  establishing  a  Tariff  Com- 
mission was  to  furnish  to  Congress  a  permanent  Gov- 
ernment organization  that  would  be  at  all  times  a  source 
of  information  upon  every  item  and  schedule  in  the 
tariff,  an  organization  to  which  individual  members  of 
Congress  could  come  for  the  facts,  or  upon  which  the 
committees  of  Congress  could  draw  officially  for  data 
carefully  compiled  and  arranged  upon  any  tariff  subject 
under  consideration.  It  would  seem  to  be  self-evident 
that  a  permanent  staff  of  experts,  compiling  up-to-date 
and  properly  arranged  information  upon  tariff  subjects, 

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COMMERCIAL  POLICY 

would  be  of  inestimable  value  to  Congress.  A  clear 
statement  of  facts  often  half  solves  difficult  problems. 
No  higher  service  can  be  rendered  to  Congress  and  to  the 
people  of  the  United  States  by  the  Tariff  Commission 
than  to  bring  out  into  the  light  the  facts  about  the  tariff. 
If  this  is  done,  Congress  and  the  people  will  have  less 
difficulty  in  determining  what  the  rates  should  be. 

If  the  establishment  of  the  Tariff  Commission  means 
anything  at  all,  it  means  that  Congress  intends  to  treat 
the  tariff  hereafter  as  a  national  matter.  One  of  the 
real  services  that  the  Commission  can  perform  is  to 
assist  Congress  in  eliminating  from  tariff  making  local 
and  particularistic  tendencies.  Facts  will  be  presented 
in  their  national  setting,  which  of  itself  will  enable  mem- 
bers of  Congress  to  consider  the  tariff  in  its  broader 
aspects.  A  tariff  that  favors  a  special  locality  or  in- 
dustry at  the  expense  of  the  rest  of  the  country  has  in 
it  the  seeds  of  its  own  destruction.  In  the  past,  when 
the  revision  of  the  tariff  has  been  under  consideration. 
Congressmen  have  been  harassed  by  requests  from  special 
interests  for  favored  treatment.  A  member  of  Congress 
now  may,  if  he  likes,  refer  these  requests  to  the  Tariff 
Commission  with  the  assurance  that  the  facts  will  be 
verified  and  the  interests  of  all  considered  in  the  report. 
In  this  and  similar  ways  the  Commission  will  assist  Con- 
gress in  taking  out  of  politics  those  phases  of  the  tariff 
that  thrive  on  sectional  and  personal  selfishness,  and  by 
so  doing  will  leave  to  the  members  of  Congress  more  time 
to  consider  those  phases  that  can  never  be  taken  out  of 
politics. 


CHAPTER  VIII 


ANTI-DUMPING  LEGISLATION 

What  dumping  is  not  —  Competition  witli  cheap  foreign  goods  — 
Undervaluation  —  Specific  vs.  ad  valorem  duties  —  Counter- 
vailing duties  —  Types  of  dumping  —  Sporadic  selling  abroad 
below  price  at  home  —  Dumping  as  a  permanent  policy  — 
Dumping  as  predatory  price  cutting  —  Effect  of  dumping  on 
American  industries  —  Post-war  possibilities  —  Canadian 
dumping  law  —  Australian  method  of  handling  unfair  com- 
petition—  American  dumping  legislation  of  1916  —  Proposed 
revisions. 

A  tariff  that  equalizes  the  normal  permanent  differ- 
ences in  competitive  conditions  between  this  country  and 
foreign  countries  should  be  supplemented  by  legislation 
that  will  prevent  foreign  interests  from  defeating  the 
intent  of  Congress  in  enacting  the  tariff  law.  Failure  to 
recognize  this  fact  tends  to  encourage  the  agitation  for  a 
prohibitive  tariff.  In  addition  to  a  tariff  law  that  will 
place  our  industries  on  an  equality  with  their  foreign 
competitors,  we  need  trade  defenses  that  will  keep  them 
there. 


''Dumping''  is  a  term  which  is  heard  frequently  and 
which  is  used  very  loosely  by  business  men.  The  great 
majority  of  cases  described  as  dumping  are  merely  cases 
of  severe  competition  of  cheap  foreign  goods.  Foreign 
manufacturers  may  not  be  guilty  of  dumping  even 
though  they  are  selling  their  products  in  the  United 
States  at  prices  that  make  it  impossible  for  American 
competitors  to  remain  in  business.  Their  costs  may  be  so 
low  that  they  can  continue  to  undersell  the  American 
manufacturer  and  make  a  profit.     We  get  nowhere  by 

137 


COMMERCIAL  POLICY 

calling  this  condition  '* dumping.'*  It  may  require  a 
remedy,  but  the  remedy  is  a  higher  tariff,  not  anti- 
dumping legislation.  The  persistent  selling  in  the 
American  market  of  those  foreign  goods  which  it  is  de- 
sired to  protect  at  a  price  below  the  cost  of  American 
manufacture  is  precisely  the  sort  of  condition  that  a 
tariff  law  should  be  devised  to  correct. 

There  is  another  objectionable  trade  practice  which  is 
not  dumping,  although  it  is  often  confused  with  it.  This 
practice  is  undervaluation.  In  the  American  tariff  law 
ad  valorem  duties  are  assessed  on  the  foreign  value  of  the 
goods.  The  lower  the  value,  the  less  duty  need  be  paid ; 
the  higher  the  value,  the  more  protection  the  American 
manufacturer  gets.  Disputes  are  not  infrequent  be- 
tween Government  appraisers  and  importers.  In  spite 
of  the  machinery  devised  for  determining  foreign  values, 
undervaluing  of  goods  is  not  uncommon.  It  may  be 
unintentional,  or  it  may  be  carried  out  by  an  elaborate 
system  of  false  invoices  and  entries.  Here  again  a 
remedy  is  necessary,  but  not  anti-dumping  legislation. 

The  tendency  in  modern  tariff  making  is  to  abandon, 
wherever  possible,  ad  valorem  duties  and  adopt  specific 
duties,  that  is,  duties  on  units  of  quantity,  so  much  per 
pound,  so  much  per  gallon,  and  so  forth.  Many  rates 
in  the  American  tariff,  now  ad  valorem,  should  be 
specific.  Not  only  do  ad  valorem  rates  make  under- 
valuation possible,  but  they  afford  American  producers 
the  least  protection  when  they  most  need  it.  When  the 
price  of  a  particular  commodity,  for  example,  steel,  rises 
abroad,  the  effective  amount  of  protection  given  by  ad 
valorem  duties  is  relatively  higher,  but  it  is  then  that 
it  is  least  needed  by  the  American  industries  affected. 
On  the   other  hand,   when   prices   of  particular  com- 

138 


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ANTI-DUMPING  LEGISLATION 

modities  fall  abroad,  and  it  is  profitable  for  importers  to 
buy  them  for  sale  in  the  United  States,  a  percentage 
duty  on  low  foreign  values  affords  relatively  less  pro- 
tection. In  other  words,  ad  valorem  duties  vary  in 
amount  inversely  with  the  needs.  Specific  duties  need 
no  change  if  relative  conditions  do  not  change.  Ad 
valorem  duties  need  change  when  an}i:hing  changes. 

Specific  duties,  however,  require  very  careful,  and  in 
some  cases,  detailed  classification  of  goods  in  the  tariff 
act.  Prohibitive  duties  may  be  concealed  in  specific 
duties,  as  they  were  in  the  old  so-called  compensatory 
duties  in  the  Payne-Aldrich  woolen  tariff.  Ad  valorem 
duties  may  be  resorted  to  because  of  a  lack  of  knowl- 
edge in  tariff  making,  for  they  automatically  adjust 
themselves  to  variations  in  price.  If  a  tariff  law 
does  not  have  a  scientific  classification  of  articles,  ad 
valorem  duties  had  better  be  used.  But  the  aim  of 
tariff  making  should  be  a  scientific  classification  of  all 
products  and  the  use  of  specific  duties  wherever  possible. 
Specific  duties  are  easy  and  inexpensive  of  collection  and 
are  desirable  on  this  account  also.  The  weighing  or 
measuring  of  products  is  much  simpler  than  determining 
their  value. 

Specific  duties  are  not  always  possible.  The  earthen 
and  chinaware  tariff,  for  example,  does  not  seem  to  be 
adapted  to  specific  duties.  Values  vary  so  widely  that 
a  duty  on  the  weight  or  size  would  result  in  injustice. 
But  in  this  line  of  goods  undervaluation  has  been  par- 
ticularly flagrant.  The  way  out  of  this  and  similar 
dilemmas  seems  to  be  the  adoption  of  what  is  known  as 
a  system  of  fixed  valuations.  Such  a  system  consists  of 
a  list  of  established  values  on  every  class  and  grade  of 
goods  which  are  used  for  a  stated  period  as  the  basis  for 
assessing  ad  valorem  rates  regardless  of  the  foreign 

139 


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COMMERCIAL  POLICY 

market  price.  It  is  ad  valorem  in  form  but  specific  in 
effect.  The  successful  working  of  such  a  system  requires 
a  frequent  revision  of  the  values  in  the  list.  For  a  num- 
ber of  years  the  Treasury  Department  followed  such  a 
plan  in  administering  the  pottery  schedule  of  the  tariff, 
but  it  was  finally  overruled. 

Even  were  specific  duties  and  fixed  valuations  adopted 
generally,  some  cases  would  remain  that  could  only  be 
reached  by  ad  valorem  duties.  For  example,  the  so- 
called  *'eatch-air'  or  ** blanket''  clauses  of  the  tariff  act 
will  necessarily  contain  ad  valorem  rates.  The  laws  of 
the  United  States  now  provide  that  duties  shall  be  levied 
on  the  value  of  goods  in  the  principal  foreign  market.^ 
This  method,  supported  by  effective  machinery  for  de- 
tecting undervaluation,  is  probably  the  most  satisfactory 
way  of  handling  a  tariff  based  on  values. 

Still  another  practice,  objectionable  and  requiring  a 
remedy,  should  be  distinguished  from  the  practice  known 
as  dumping,  although  as  a  matter  of  fact  it  is  a  form 
of  dumping.  In  some  countries  export  bounties  or 
similar  aids  in  the  nature  of  subsidies  are  granted  to 
exporters.  The  result  is  to  nullify  the  tariff  of  this 
country  pro  tanto.  Countervailing  duties  is  the  name 
usually  given  to  the  duties  this  country  has  employed  to 
defend  itself  against  such  an  effort  to  evade  its  laws. 
The  American  Tariff  Act  of  October  3,  1913,  provides 
that  when  *'any  country,  dependency,  colony,  province, 
or  other  political  subdivision  of  government"  shall  grant 
any  bounty  on  the  exportation  of  any  article  and  that 
article  is  imported  into  the  United  States,  it  shall  be 
subjected  to  an  additional  duty  equal  to  the  net  amount 
of  the  bounty.     A  general  clause  providing  for  counter- 

1  Act  of  October  3,  1913,  Section  III,  paragraphs  K,  L,  and  R. 

140 


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ANTI-DUMPING  LEGISLATION 

vailing  duties  is  now  an  accepted  part  of  our  tariff  laws. 
Some  important  questions,  however,  are  still  unsettled 
with  reference  to  them.  Our  present  law  provides  only 
for  countervailing  duties  in  case  the  bounty  or  grant  is 
made  by  a  governmental  organization.  The  most  in- 
sidious and  undesirable  preferential  treatment  accorded 
to  exporters  is  sometimes  established  by  organizations 
that  are  either  controlled  solely  by  commercial  interests 
or  are  used  as  a  cloak  for  Government  activities.  These 
private  concerns,  private  in  form  or  in  fact,  at  times 
grant  bounties  and  subsidies  to  their  members  in  export- 
ing to  foreign  countries,  or  preferential  railroad  or 
steamship  rates  are  given.  So  far  as  the  effect  is  con- 
cerned, it  makes  no  difference  to  this  country  whether 
bounties  or  other  forms  of  preferential  treatment  are 
granted  by  a  foreign  Government  or  private  organiza- 
tion. Countervailing  duties  should  be  extended  to  in- 
clude bounties  granted  by  private  cartels  or  associations, 
preferential  railroad  and  steamship  rates,  and  any  other 
form  of  grant  that  tends  to  nullify  the  object  Congress 
had  in  mind  when  it  enacted  our  tariff  duties. 

Three  aspects  of  dumping  must  be  distinguished  before 
this  practice  can  be  understood  and  before  adequate 
anti-dumping  legislation  can  be  devised.  Dumping 
may  be : 

(1)  A  temporary  and  sporadic  selling  abroad  be- 
low the  domestic  price  of  a  surplus  that  cannot  be 
disposed  of  at  a  profitable  price  at  home.  It  is  the 
principle  of  the  ''bargain  counter"  applied  to  inter- 
national trade. 

(2)  A  constant  deliberate  selling  abroad  below 
the  domestic  price  of  a  portion  of  a  factory's  out- 
put, since  by  operating  full  time  foreign  producers 

141 


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COMMERCIAL  POLICY 

can  reduce  the  average  cost  and  increase  the  total 
profits.  Monopoly  frequently  results  in  this 
practice. 

(3)  A  method  of  predatory  price  cutting  intended 
to  destroy  a  foreign  industry,  to  eliminate  a  com- 
petitor, or  to  prevent  the  development  of  competi- 
tion in  the  import  market. 
Dumping  in  the  first  sense  is  a  vague  name  for  a  very 
familiar  practice.  It  is  as  old  as  commerce.  It  con- 
sists of  selling  goods  for  whatever  they  will  bring, 
usually  at  or  below  cost.  This  practice  is  well  known  to 
one  who  from  curiosity  or  seeking  of  profit  frequents 
city  markets  on  Saturday  night.  As  evening  comes  on, 
vendors  of  fruit  and  vegetables  find  that  they  have  sup- 
plies on  hand  that  will  not  be  purchased  at  the  price 
they  have  been  asking  all  day.  Rather  than  be  left  with 
these  goods  on  their  hands  to  spoil,  they  will  sell  them 
for  any  price  that  is  offered,  regardless  of  cost.  In  other 
words,  they  dump.  Rapid  changes  in  fashion  result  in 
the  practice  of  dumping  in  businesses  that  handle 
women  *s  wearing  apparel.  Suits  and  hats  still  on  hand 
at  the  end  of  a  season  are  sold  at  sacrifice  prices. 
Merchants  put  on  ** summer  sales"  and  stock-renewal 
sales  and  start  ** bargain'*  counters  in  order  to  get  rid 
of  goods  that,  although  useful  and  in  good  condition, 
have  gone  out  of  style. 

The  term  dumping  is  not  applied  to  these  practices  in 
domestic  trade.  But  when  the  same  method  is  pur- 
sued in  foreign  trade,  it  ia  called  dumping.  When  a 
manufacturer  has  on  hand  a  surplus  of  goods  that  he 
cannot  sell  to  his  usual  customers  at  a  price  that  will 
yield  a  reasonable  profit,  he  may  cut  prices  in  his  main 
market,  or  he  may  refrain  from  demoralizing  the  home 
market  and  ship  his  surplus  elsewhere,  usually  abroad, 

142 


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ANTI-DUMPING  LEGISLATION 

and  sell  it  there  for  what  it  will  bring.  It  may  yield  a 
small  profit ;  it  may  be  sold  at  or  below  cost. 

Whether  or  not  dumping  is  undesirable  for  the  coun- 
try receiving  the  goods  depends  upon  circumstances. 
Countries  that  have  no  manufactures  to  consider  wel- 
come dumping.  The  cheaper  the  goods  they  receive, 
the  better  for  the  consumer,  and  there  are  no  domestic 
interests  to  be  adversely  affected  by  price  cutting. 
Although  a  great  manufacturing  nation,  Great  Britain 
permitted  goods  to  be  dumped  on  her  shores.  Anti- 
dumping legislation  was  for  a  time  regarded  as  incon- 
sistent with  her  free-trade  traditions.^  The  war,  how- 
ever, has  crystallized  the  sentiment  against  dumping, 
and  Great  Britain  will  no  doubt  follow  the  recommenda- 
tions of  the  Board  of  Trade  *  and  enact  a  defensive  meas- 
ure that  will  protect  her  industries  from  dumping. 

Dumping  legislation,  it  must  always  be  kept  in  mind, 
raises  a  question  of  national  expediency.  The  attitude 
of  a  nation  toward  the  practice  is  a  matter  of  policy. 
Producers  have  a  right  to  seek  whatever  market  they 
choose  for  their  goods.  If  an  American  manufacturer 
sells  his  goods  abroad  at  a  reduced  price  in  order  to 
meet  competition,  or  in  order  to  get  rid  of  a  surplus,  no 
objection  should  be  raised  on  the  part  of  this  country. 
Dumping  in  the  sense  of  merely  getting  rid  of  a  surplus 
is  not  immoral  any  more  than  is  the  offering  of  bargains 
in  the  domestic  market.  British  manufacturers,  who 
have  claimed  that  their  country  is  the  ''dumping  ground 
of  the  world,''  have  practiced  dumping  extensively. 
Amefrican  manufacturers  also  dump  abroad.  The  ques- 
tion confronting  the  manufacturer  is  to  find  a  country 

2  In  the  Brussels  Sugar  Convention  Great  Britain  united  with 
other  nations  to  stop  dumping  of  bounty-fed  sugar.  See  Chapter 
XII. 

3  British  Blue  Book,  Cd.  9035  (1918),  p.  44, 

143 


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1 1 


COMMERCIAL  POLICY 

willing  to  be  dumped  upon,  and  some  countries  welcome 
it  because  it  brings  them  cheap  goods  and  they  have  no 
industrial  fabric  to  maintain.  The  question  that  con- 
fronts each  country  is  whether  or  not  it  can  afford  to  be 
a  dumping  ground. 

Industry  is  now  organized  on  a  vast  scale.  It  is  not 
always  possible  to  judge  what  quantity  of  a  given  line 
of  goods  the  market  will  take  at  a  price  that  will  yield 
a  profit,  and  even  when  the  state  of  the  market  can 
be  determined,  it  is  not  always  possible  for  manufac- 
turers to  curtail  production  immediately.  Under  the 
present  organization  of  industry  there  is  always  the 
danger  of  over-production  of  goods  beyond  the  point  at 
which  they  can  be  disposed  of  profitably.  The  Dutch 
East  India  Company  is  said  to  have  pursued  the  unjusti- 
fiable practice  of  destroying  parts  of  its  produce  rather 
than  shipping  it  to  Europe  where  it  would  break  the 
market.  In  this  case  the  monopolistic  feature  was  promi- 
nent. The  condition  created  by  over-production  is 
met  by  manufacturers,  as  a  rule,  not  by  destruction, 
but  by  dumping.  Selling  goods  abroad  at  whatever 
they  will  bring  is  resorted  to  from  time  to  time  by 
manufacturers  to  get  rid  of  surpluses  that  have  unavoid- 
ably remained  on  their  hands.  It  relieves  a  temporary 
situation  produced  by  the  exigencies  of  large-scale  pro- 
duction or,  it  may  be,  by  industrial  and  financial  de- 
pression. 

Thus  far  we  have  considered  dumping  chiefly  as  a 
temporary  measure  for  getting  rid  of  a  surplus  of  goods 
that  accumulated  unintentionally.  The  second  form  of 
dumping,  however,  is  not  merely  objectionable  when 
practiced  by  foreigners  in  American  markets,  but  should 
probably  not  be  encouraged  among  our  own  manufac- 

144 


i 


^ 


4 


f  I 


ANTI-DUMPING  LEGISLATION 

turers.  Dumping,  that  is,  selling  abroad  for  a  price  less 
than  at  home,  may  be  adopted  by  an  industry  as  a 
permanent  policy.  Looking  at  the  matter  purely  from 
the  standpoint  of  industry,  a  very  plausible  argument 
can  be  made  in  justification  of  it.  Dumping,  it  is  said, 
may  be  justified  by  the  needs  of  fixed  capital  in  large- 
scale  production.  In  industries  that  have  a  large  amount 
of  capital  invested  in  buildings  and  machinery,  it  is 
very  desirable  to  keep  running,  and  if  possible  to  keep 
running  full  time,  which  is  not  always  possible  because 
of  variations  in  domestic  demand.  Some  manufacturers 
would  be  willing  to  run  their  plants  at  a  certain  immedi- 
ate loss  for  a  period  of  time  rather  than  allow  their 
labor  force  to  scatter  and  the  plants  to  stand  idle.  The 
cost  of  manufactured  goods  includes  (1)  the  so-called 
fixed  charges,  such  as  interest  on  investment,  deprecia- 
tion of  property,  taxes,  and  salaries,  and  (2)  the  cost 
of  materials  and  wages.  The  fixed  charges  must  be  met 
whether  the  mill  is  running  or  standing  idle,  whether  it 
is  running  full  or  part  time.  If  a  manufacturer  sells 
a  part  of  his  output  in  the  home  market  at  a  price  that 
covers  the  fixed  charges  of  his  mill  and  the  cost  of  ma- 
terial and  labor  used  in  producing  the  product  sold  in 
the  home  market,  he  can  then  afford  to  sell  his  surplus 
in  another  market  at  a  price  that  covers,  with  a  small 
profit,  the  added  cost  of  materials  and  labor. 

It  is  a  commonplace  that  practically  all  cost  data 
run  in  terms  of  average  cost  for  the  fiscal  period.  The 
*'law  of  increasing  returns,'*  to  use  an  expression  of  the 
professional  economist,  is  not  reflected  in  cost  figures 
except  in  the  averages  for  the  period.  One  year  when 
the  output  is,  say,  1,000  items,  the  (average)  costs  may 
be  $100  per  unit,  whereas  the  following  year  when 
the  output  is  2,000  items,  the   (average)   cost  may  be 

145 


COMMERCIAL  POLICY 

$75  per  unit.  Under  such  conditions  the  accounting  de- 
partment would  insist  that  the  firm  is  losing  money 
whenever  sales  are  made  below  $100  or  $75  as  the  case 
may  be.  On  the  other  hand,  the  sales  manager  may 
argue  with  equal  vehemence  that  total  profits  may  be 
increased  by  selling  a  portion  of  the  supply  at  less  than 
average  cost  so  long  as  such  portion  bears  some  part  of 
the  overhead  burden.  This  latter  argument  is,  of  course, 
the  old  justification  of  ** dumping'*  stated  in  accounting 
terms.  It  becomes,  therefore,  of  paramomit  importance 
in  tariff  administration  to  determine  whether  competing 
articles  are  priced  on  the  basis  of  average  cost  or  on 
the  basis  of  additional  cost,  that  is,  cost  of  direct  labor 
and  material  plus  a  portion  of  overhead. 

A  firm  must  sell  in  its  principal  market  on  the  basis 
of  average  cost  in  the  long  run,  whereas  it  may  sell 
advantageously  in  a  secondary  market  a  part  of  its 
product  at  less  than  average  cost.  The  principal  market 
may  be  at  home  and  the  secondary  market  abroad,  or 
one  foreign  market  be  primary,  for  example,  the  United 
States,  and  another,  Canada,  secondary.  The  primary 
market  is  where  the  producer  has  his  selling  organiza- 
tion, and  rather  than  demoralize  the  market,  he  will  sell 
elsewhere  any  surplus  he  may  find  it  desirable  to  produce. 
Industries  that  produce  for  export  must  sell  in  their 
principal  foreign  market  on  average  costs  rather  than 
on  dumping  costs. 

The  manufacturing  establishment  depending  primarily 
upon  the  domestic  market  but  exporting  large  amounts 
of  goods  may  suddenly  suffer  under  foreign  competition. 
If  the  exports  are  based  upon  the  theory  of  '* dumping," 
the  premises  necessarily  are  that  domestic  prices  are 
higher  and,  therefore,  offer  an  inviting  field  for  compe- 
tition from  abroad  in  the  very  commodities  exported. 

146 


ANTI-DUMPING  LEGISLATION 

As  soon  as  a  competing  product  begins  to  be  imported, 
the  foundation  of  the  export  trade,  viz.,  a  large  domestic 
market,  is  cut  away,  and  the  whole  industry  (through 
the  collapse  of  individual  concerns,  of  course)  may  be 
injured  or  destroyed.  The  same  situation  might  come 
upon  an  industry  depending  primarily  upon  one  foreign 
market  and  dumping  in  another.  Hence  under  a 
** dumping"  price  policy  large  exports  are  not  an  indi- 
cation of  ability  to  meet  foreign  competition  in  the 
domestic  market.  On  the  other  hand,  if  prices  are 
based  on  average  cost,  the  presumptions  run  the  other 
way.  If  for  example,  the  export  industries  of  Great 
Britain  can  sell  abroad  in  face  of  competition,  it  is 
safe  to  assume  that  likewise  they  can  protect  their 
domestic  market  without  a  tariff.  All  this,  of  course, 
is  familiar  doctrine  to  the  economist,  but  it  is  well  to 
reiterate  it  here  to  emphasize  the  enormous  complexity 
of  the  problem  of  tariff  and  anti-dumping  legislation. 

Under  a  permanent  dumping  policy  the  surplus 
shipped  abroad  is  regarded  as  a  by-product,  and  like 
other  by-products  it  has  no  definite  cost  price  but  is 
sold  for  whatever  it  will  bring.  As  in  the  case  of  other 
by-products,  however,  it  may  be  a  real  source  of  income 
and  profit  for  the  industry  as  a  whole.  When  there  is 
a  deliberate  intention  to  dump,  the  manufacturer,  in- 
stead of  restricting  his  output  to  meet  domestic  needs 
only,  fixes  a  price  for  the  home  trade  that  yields  a  profit 
and  sells  all  that  the  market  will  take  at  that  price; 
he  then  exports  the  remainder  of  his  production  and  sells 
it  for  what  it  will  bring. 

Dumping,  in  the  third  place,  may  take  the  form  of 
unfair  price  cutting  for  the  purpose  of  putting  a  com- 
petitor out  of  business  in  a  neutral  market  or  for  the 

147 


ft 


COMMERCIAL  POLICY 

purpose  of  destroying  or  preventing  the  rise  of  a  foreign 
competing  industry.  Such  practices  are  unjustifiable, 
and  international  as  well  as  national  action  should  be 
taken  to  stop  them.* 

Superficially  it  may  seem  poor  logic  to  argue  against 
the  importation  of  cheap  goods.    Why,  it  may  be  asked, 
should  we  in  this  country  object  if  foreigners  are  willing 
to  sell  us  their  goods  at  or  below  cost?     Why  should 
we  not  allow  them  to  increase  our  national  wealth  at  the 
expense  of  their  own?     If  this  were  all  there  were  to 
the  question,  it  would  probably  not  be  necessary  to  dis- 
cuss it  further.     Naturally  cheap  goods,  other  things 
being   equal,    are    desirable.     But   are   dumped    goods 
actually,  and  in  the  long  run,  cheap  goods  ?     If  we  could 
be  sure  that  the  industries  of  foreign  nations  would  fur- 
nish us  without  interruption  with  a  certain  supply  of 
goods  at  less  than  cost,  it  might  be  well  for  us  to  consider 
a  change  in  our  national  policy.    If  we  could  be  certain 
that  we  should  always  receive  dumped  goods,  dumping 
might  be  a  blessing.     But  dumping  in  fact  brings  cheap 
goods  only  intermittently.    Even  when  some  industries 
abroad  have  adopted  a  permanent  policy  of  dumping, 
their  surplus,  from  the  very  nature  of  the  case,  could  not 
supply  the  whole  of  our  market,  nor  could  we  feel  certain 
that  even  this  condition  of  dumping  would  last.     The  ad- 
vantages of  dumping  even  to  the  consumer  are  doubtful. 
The  consumer  may  profit  temporarily.    When  the  Greeks 
come  bearing  gifts,  however,  they  are  most  to  be  feared. 
Timeo  Danaos  et  dona  ferentes.     The  inevitable  result 
of  dumping  is  to  destroy  the  industry  producing  goods 
similar  to  those  dumped.    It  can  continue  in  the  market 
only  if  it  meets  the  price  at  which  the  dumped  goods 

*  See  Chapter  XII. 

148 


ANTI-DUMPING  LEGISLATION 


are  sold,  whereas  the  foreign  rival  is  selling  the  bulk 
of  his  goods  at  a  profitable  margin.  Only  one  result 
can  come  from  this  unequal  competition.  As  soon  as  the 
American  competition  is  removed,  the  foreign  producer 
may  particularly  in  case  of  foreign  monopoly  raise  the 
price.  He  will,  in  fact,  have  to  do  so,  since  he  cannot 
afford  to  supply  our  entire  needs  at  the  price  of  the 
dumped  goods.  He  will  then  control  the  market  and 
the  consumer  will  pay  what  is  asked.  The  consumer,  it 
should  not  be  forgotten,  has  a  real  interest  in  the  main- 
tenance of  the  industries  of  this  country  in  vigor  and 
strength. 

Any  temporary  cheapness  of  goods  to  the  consumer 
that  results  when  foreign  manufacturers  dump  their 
goods  on  our  market  in  no  way  compensates  for  the 
shock  that  dumping  gives  to  American  industry.  It  is 
only  justice  to  our  industries  that  we  protect  them  from 
unfair  methods  in  competition  from  abroad.  We  do  not  , 
permit  these  methods  among  our  own  manufacturers.* 
There  is  a  better  reason  for  forbidding  them  in  the 
case  of  imported  goods.  During  the  war  new  industries 
have  grown  up  in  the  United  States  to  supply  goods 
formerly  imported  from  Europe.  While  the  war  lasted, 
these  young  industries  were  protected,  but  when  their 
European  competitors  begin  again  to  produce  for  export, 
measures  of  self-defense  will  be  necessary.  Not  only 
will  some  of  the  industries  abroad,  because  of  their 
longer  experience,  be  in  a  stronger  position  for  competi- 
tion, but  all  will  be  willing  to  make  temporary  sacrifices 
if  thereby  they  can  crush  their  young  competitors  in 
America  and  regain  full  control  of  our  market.  Dump- 
ing in  its  worst  form  may  be  adopted  by  the  foreign 


5  Sherman  Anti-Trust  Act  and  Federal  Trade  Commission  Act; 
see  Chapter  XIT. 

149 


COMMERCIAL  POLICY 

producer  to  win  back  what  he  has  lost  by  the  war.  Our 
industries  must  be  protected  from  such  unfair  methods. 
European  nations  will  soon  make  supreme  efforts  all 
along  the  line  to  regain  their  industrial  prestige.  They 
may  do  it  by  industrial  combinations,  bounties,  and 
tariff  duties,  and  by  the  practice  that  usually  ac- 
companies these  —  dumping.  It  will  be  the  policy  of 
European  nations  to  keep  their  industries  running  full 
time  in  order  to  make  up  for  the  frightful  waste  of  war, 
and  whatever  surplus  their  home  markets  do  not  absorb, 
they  will  throw  upon  foreign  markets. 

Under  these  conditions  a  more  or  less  permanent  policy 
of  dumping  will  become  profitable,  both  because  it  will 
enable  the  foreign  producer  to  run  his  mills  full  time 
and  give  him  a  profit  on  his  surplus  shipped  abroad, 
and  because  it  will  also  assist  him  in  regaining  his  foreign 
markets.  Great  quantities  of  goods  will  no  doubt  be 
produced  that  the  foreign  consumer,  impoverished  by 
the  war,  will  not  be  able  to  purchase.  These  bankrupt 
goods  will  be  shipped  abroad,  and  our  market,  if  un- 
protected, will  be  a  favorite  dumping  place. 

Dumping  legislation  in  force  in  other  countries  falls 
naturally  into  two  classes:  (1)  legislation  increasing 
tariff  rates  to  be  charged  on  dumped  goods;  (2)  legis- 
lation defining  dumping  as  an  unfair  method  in  compe- 
tition and  forbidding  it. 

The  Canadian  law  is  the  most  familiar  and  the  pioneer 
example  of  tariff  legislation  directed  against  dumping. 
It  was  copied  by  the  Union  of  South  Africa.  It  was 
also  the  basis  of  the  dumping  clause  incorporated  by 
the  House  of  Representatives  in  the  Tariff  Act  of  Oc- 
tober  3, 1913,  but  rejected  by  the  Senate.^    The  Canadian 


ANTI-DUMPING  LEGISLATION 

law  provides  ^  that  in  case  of  articles  exported  to  Canada 
of  a  kind  made  or  produced  in  Canada,  if  the  export 
or  actual  selling  price  to  an  importer  in  Canada  be 
less  than  the  fair  market  value  of  the  same  article  when 
sold  for  consumption  in  the  country  whence  exported, 
there  shall,  in  addition  to  the  duties  otherwise  charged, 
be  charged,  collected,  and  paid  a  special  or  dumping 
duty  not  to  exceed  15  per  centum.  This  special  or  dump- 
ing duty  applies  to  the  free  as  well  as  the  dutiable  list. 
The  possibility  of  evasion,  as,  for  example,  by  consign- 
ment without  sale,  is  provided  against  by  giving  the 
Governor-General  in  Council  power  to  deal  with  such  a 
situation. 

The  Industries  Preservation  Act  of  1906  of  the  Com- 
monwealth of  Australia  deals  with  dumping  as  an  unfair 
method  in  competition.  Unfair  competition  in  the  law 
has,  in  all  cases,  reference  to  competition  with  those 
Australian  industries  the  preservation  of  which,  in  the 
opinion  of  the  Comptroller-General  of  Customs  or  a 
Justice  of  the  High  Court,  is  advantageous  to  the  Com- 
monwealth of  Australia,  having  due  regard  to  the  inter- 
ests of  producers,  workers,  and  consumers.  Competition 
is  deemed  to  be  unfair,  unless  the  contrary  is  proved, 
if  in  ordinary  circumstances  of  trade  it  would  probably 
lead  to  the  Australian  goods  being  no  longer  produced, 
or  being  withdrawn  from  the  market,  or  being  sold  at  a 
loss  unless  produced  at  an  inadequate  remuneration  for 
labor ;  or  if  the  means  adopted  by  the  importer  are  un- 
fair in  the  circumstances;  or  if  the  competition  would 
probably  or  does  in  fact  result  in  an  inadequate  remuner- 
ation for  labor  in  the  Australian  industry ;  or  if  the  com- 
petition would  probably  or  does  in  fact  result  in  creating 
a  substantial  disorganization  of  Australian  industry  or 

T  For  full  quotation  see  Appendix  VII. 

151 


COMMERCIAL  POLICY 

throwing  workers  out  of  cmplo^inent ;  or  if  the  imported 
goods  are  purchased  abroad  in  any  manner  whatever 
at  prices  greatly  below  their  ordinary  cost  of  produc- 
tion where  produced  or  the  market  price  wiiere  pur- 
cliased;  or  if  imported  goods  are  sold  in  Australia  at  a 
price  that  is  less  than  gives  the  importer  a  fair  price  upon 
their  fair  foreign  market  value  of  production  together 
with  all  charges.  The  law  provides  further  that  these 
cases  of  unfair  competition  shall  be  heard  before  a 
court  and  if  the  law  is  violated,  the  importation  of 
goods  may  be  prohibited  either  absolutely  or  subject 
to  any  specified  conditions  or  restrictions  or  limitations. 

Dumping  legislation  was  enacted  by  the  Congress  of 
the  United  States  on  September  8,  1916.  The  immediate 
occasion  for  passing  this  Act «  was  the  unfair  methods 
of  competition  which  the  German  coal-tar  dye  industry 
had  used  in  maintaining  its  international  supremacy. 
By  this  law  it  is  a  criminal  act  for  any  person  importing 
goods  into  the  United  States  to  sell  them  within  the 
United  States 

at  a  price  substantially  less  than  the  actual  market  value  or 
wholesale  price  of  such  articles  at  tlie  time  of  exportation  to 
the  United  States  in  the  principal  markets  of  the  country  of 
their  production,  or  of  other  foreign  countries  to  which  they 
are  commonly  exported,  after  adding  to  such  market  value  or 
wholesale  price,  freight,  duty,  and  other  charges  and  ex- 
penses necessarily  incident  to  the  importation  and  sale  thereof 
in  the  United  States :  Provided,  That  such  act  or  acts  be  done 
with  the  intent  of  destroying  or  injuring  an  industry  in  the 
United  States,  or  of  preventing  the  establishment  of  an  in- 
dustry in  the  United  States,  or  of  restraining  or  monopolizing 
any  part  of  trade  and  commerce  in  such  articles  in  the  United 
States. 

In  addition  to  this  prohibition  of  unfair  price  cutting, 

«  Quoted  in  Appendix  VII. 

152 


ANTI-DUMPING  LEGISLATION 

the  law  makes  provision  against  the  practice  known  as 
''full-line  forcing.'*  Articles  will  be  assessed  with  a 
double  duty  that  are  imported  into  this  country  under 
an  agreement  that  any  person  shall  not  use,  purchase, 
or  deal  in,  or  shall  be  restricted  in  his  using,  purchasing, 
or  dealing  in,  the  articles  of  any  other  person.  If, 
for  example,  the  German  dye  industry  controls  by  patent 
a  color  needed  in  this  country,  it  cannot  use  the  necessity 
of  the  American  consumer  as  a  means  of  forcing  him 
to  purchase  his  full  line  of  dyes  from  abroad  when  all 
the  colors  except  the  one  controlled  by  the  patent  can 
be  purchased  in  this  country. 


When  we  come  to  consider  anti-dumping  legislation, 
the  importance  of  the  three  kinds  of  dumping  already 
discussed  is  obvious.  It  will  be  recalled  that  these  in- 
clude: (1)  the  sporadic  selling  of  goods  in  order  to 
relieve  a  surplus,  that  is,  the  offering  of  bargain  sales 
in  international  trade;  (2)  a  permanent  policy  of  foreign 
industries  of  selling  in  this  country  a  portion  of  their 
output  at  a  price  below  their  domestic  price  in  order 
to  keep  their  factories  running  full  time;  and  (3)  unfair 
price  cutting,  the  object  of  which  is  to  injure,  destroy, 
or  prevent  the  establishment  of  an  American  industry. 

The  American  legislation  of  1916  was  directed  only 
against  the  third  type  of  dumping.  It  made  no  pro- 
vision for  preventing  the  injury  to  American  industries 
by  the  first  two.  Obviously  it  makes  little  difference 
whether  American  industry  is  injured  or  destroyed  by 
the  deliberate,  intentional  acts  of  a  foreign  producer, 
or  whether  it  comes  about  inadvertently.  The  intent 
of  the  foreigner  is  of  secondary  importance  so  far  as 
national  policy  is  concerned.  The  result  is  the  thing 
that  is  to  be  prevented. 

153 


COMMERCIAL  POLICY 

The  Canadian  method  of  stopping  dumping  has  proved 
effective  in  practice.  Elaborate  forms,  regulations,  and 
procedure  have  been  devised  which  have  demonstrated 
beyond  all  question  that  the  Canadian  method  is  a  prac- 
ticable way  of  handling  the  dumping  problem.  This 
method  is  comparatively  simple  and  might  be  found 
serviceable  in  this  country,  but  it  is  inflexible  and  in 
effect  results  in  an  increase  of  the  tariff.  By  tending 
to  raise  prices  it  bears  heavily  on  the  consumer.  Pur° 
chasing  abroad  at  bargain  prices  does  not  always  injure 
American  industry. 

The  American  legislation  of  1916  is,  as  a  matter  of 
fact,  the  basis  of  a  more  satisfactory  solution  of  the 
dumping  problem.    This  law,  however,  should  be  modi- 
fied both  in  substance  and  procedure.    It  should  be  ex- 
tended to  include  all  forms  of  dumping  the  result  of 
which  is  to  injure  or  destroy  American  industries.     It 
should  cover  not  only  those  intentional,  unfair  acts  of 
foreign  competitors  directed  against  American  indus- 
tries, but  it  should  include  also  all  selling  in  the  United 
States    at   prices   below    those   that   prevail   generally 
abroad,  or  that  are  below  the  cost  of  manufacture  abroad. 
The  criminal  provisions  of  the  law  may  be  retained, 
but  there  are  objectionable  cases  of  dumping  which  can- 
not be  proved  under  the  strict  procedure  of  criminal  law. 
Then,  too,  it  is  not  always  possible  to  bring  the  offending 
party  before  our  courts  since  he  may  be  in  another 
country.     The  criminal  provisions  of  the  law  should  be 
supplemented  by  authorizing  the  President  to  levy  by 
proclamation  additional  duties  on  or  to  prohibit  the  im- 
portation of  goods  that  are  being  systematically  dumped 
into  the  United  States,  in  case  he  has  reason  to  believe 
that  the  result  will  be  to  injure,  destroy,  or  prevent  the 
establishment  of  an  American  industry.      The  United 

154 


ANTI-DUMPING  LEGISLATION 

States  Tariff  Commission,  already  authorized  to  in- 
vestigate dumping,^  should  be  designated  to  hear  and 
consider  complaints  of  dumping  and  to  report  its  find- 
ings to  the  President  for  his  consideration  and  action. 
A  dumping  law  containing  these  provisions  would  be 
more  flexible  than  the  Canadian  method;  it  could  be 
adapted  in  its  administration  to  meet  effectively  every 
objectionable  case  of  dumping.  This  power  to  prevent 
dumping  by  executive  order  at  the  discretion  of  the 
President,  together  with  the  power  of  the  Federal  Trade 
Commission  to  prevent  all  unfair  methods  of  competition 
used  by  persons  who  can  be  reached  by  its  legal 
processes,^**  should  provide  sufficient  security  for  Ameri- 
can industry  and  prevent  effectively  all  unfair  attacks 
upon  it, 

9  Act  creating  the  United  States  Tariff  Commission,  Sec.  704  j 
see  Appendix  IV. 

10  See  Appendix  X. 


I 


CHAPTER  IX 

EXPORT  TRADE  AND  ITS  PROMOTION 

Nature   of   international    trade  —  Necessity   and   dcsirabilitT   of 

the'"  ar -  GrLT  IT''  ""V;"''  '"  ^"^'^n  counWes'bL?e 
ine  war  — Great  Britain  ~  Germany  —  Post-war  rolanq  fnr 
promoting  trade -Great  Britain  -  FranL- Germany  ~ 
Japan -Canada -Growth  of  American  export  trade  duH^ 

«l'nr-^r""^^.^"^°*^'^'  destination,  and  variety -CotperaUvf 
associations  to  promote  American  exnort  tradp       F^  ?  V 
sociations  Act  —  Objections  to  ex^nrf   L!     •  .~    '^""J*  "^^^ 
ties  of  non-governmeSrdil^s  LT  mXnre'^rrt-rtde - 

-xrpVt^s -r  tS%Ye  xk^^^^^ 

International  trade,  in  the  last  analysis,  is  nothing  but 
barter.     Through  the  ordinary  course  of  exchange  the 
goods  and  services  we  receive  from  foreign  nations  must 
in  the  long  run,  be  paid  for  in  goods  and  services  fur- 
nished by  America.     Articles  such  as  coffee,   rubber 
cocoa,  jute,  and   tin  must  be  obtained  entirely  from 
foreign  countries,  and  many  other  articles,  such  as  wool 
hides,  sugar,  tropical  fruits,  and  the  like  are  imported 
extensively.     There  are  also  many  manufactured  arti- 
cles that  the  American  people  have  found  it  profitable 
to  purchase  from  European   countries.     Without  the 
importation  of  many  commodities  and  articles  the  normal 
progress  of  our  industries  would  be  arrested,  and  the 
variety  of  articles  available  for  domestic  consumption 
would  be  seriously  curtailed.    Necessity,  therefore,  com- 
pels America  to  export  sufficient  commodities,   either 
foodstuffs,  raw  materials,  or  manufactured  articles,  to 
pay  for  the  goods  and  services  furnished  by  foreign 
peoples.  ^ 

156 


EXPORT  TRADE 


In  addition  to  the  argument  from  necessity,  there  are 
other  reasons  why  a  steady  export  trade  is  desirable 
for  the  United  States.  For  one  thing  it  increases  the 
stability  of  American  industry.  The  wider  the  extent 
of  the  market,  the  greater  the  probable  stability  of  the 
industry.  If  10  or  15  per  cent,  of  a  manufacturer's 
business  consists  of  exports  to  foreign  countries,  he 
may  find  it  in  times  of  depression  at  home  a  source  of 
relief  which  enables  him  to  continue  running  his  fac- 
tory. This  will  benefit  not  merely  the  manufacturer, 
but  also  his  employees  and  the  community  that  depends 
upon  the  industry  in  question  for  a  part  of  its  prosperity. 
Foreign  trade  also  is  particularly  desirable  in  those 
industries  that  are  subject  to  seasonable  demands.  If 
an  industry  has  a  market  in  a  foreign  country,  as,  for 
example,  the  American  cement  industry  has  a  market 
in  Argentina,  it  will  benefit  by  the  fact  that  the  building 
season  there  opens  at  about  the  time  that  the  season 
closes  in  the  United  States.  A  plant  with  a  market  in 
Argentina,  therefore,  will  be  able  to  maintain  a  steady 
production  throughout  the  year,  but  if  it  relies  upon  the 
demands  of  our  domestic  market  alone,  inevitably  there 
will  be  a  period  of  the  year  when  production  must  be 
seriously  curtailed.  * 

It  is  sometimes  forgotten  that  American  export  trade 
may  be  of  great  value  to  foreign  peoples.  Men  whose 
intentions  are  good  but  whose  knowledge  of  the  eco- 
nomic conditions  of  the  world  is  slight  frequently  talk 
as  if  they  thought  foreign  trade  undesirable.  Prop- 
erly conducted,  however,  it  not  only  increases  pros- 
perity in  this  country,  but  it  increases  prosperity  in 
the  importing  countries.  Through  foreign  trade  a 
country  gets  the  commodities  that  it  cannot  produce 
advantageously  itself  in  return  for  its  exports  to  the 

157 


.  I 


COJVIMERCIAL  POLICY 

United  States  of  commodities  that  it  can  produce  to 
greater  advantage;  the  gain  is  mutual,  although  not 
always  equal.    Nations  that  are  backward  economically, 
or  nations  that  have  been  seriously  devastated  by  the 
war,  must  have  machinery  and  building  materials  to 
carry  forward  the  work  of  civilization.    Business  men, 
it  is  true,  do  not  usually  approach  their  tasks  in  an 
altruistic  spirit,  but  it  does  not  follow  from  this  that 
they  are  exploiters.     The  mutual  exchange  of  goods  be- 
tween nations  is  a  highly  desirable  and  important  factor 
in  the  development  of  society.    Although  we  should  con- 
demn improper  methods  of  promoting  export  trade,  the 
problem  should  be   approached   affirmatively  and   the 
value  of  a  substantial  export  business  recognized.    There 
are  ways  in  which  a  nation  should  promote  export  trade. 
In  the  United  States  men  are  coming  to  the  front  as 
leaders  in  our  export  business  who  have  a  grasp  of 
the   details   of  foreign   trading,   an   understanding   of 
foreign  exchanges,  banking,  transportation,  and  compe- 
tition, and  a  statesmanlike  vision  of  the  possibilities  of 
our  overseas  trade  and  its  relation  to  the  peaceful,  pro- 
gressive development  of  the  world.     They  look  upon 
foreign  trade  as  reciprocal  —  of  benefit  both  to  foreign 
•  countries  and  to  our  own.    Their  ships  that  carry  Ameri- 
can goods  to  China  and  South  America  return  laden 
with  foreign  wares,  and  these  ships  bring  us  more  than 
goods.    They  bring  us  ideas  of  foreign  peoples  —  of  their 
customs,  literature,  government,  and  social  life.     They 
break  down  the  prejudices  of  that  part  of  our  life  that 
is  narrow  and  provincial ;  they  broaden  our  sjonpathies ; 
they  help  us  to  see  our  true  place  in  a  family  of  nations. 

American  manufacturers  interested  in  exporting  are 
entitled  to  organize  their  business  in  such  a  way  as  to 

158 


EXPORT  TRADE 

enable  them  to  compete  on  an  equality  with  other  large 
exporting  nations.  Before  the  war  cooperation  was  com- 
mon among  the  financial,  transportation,  and  producing 
interests  of  certain  foreign  countries,  particularly  Ger- 
many. Export  trade  was  at  times  a  national  rather  than 
an  individual  affair.  Business  men  frequently  settled 
their  differences  among  themselves  and  moved  into 
foreign  markets  unitedly.  The  close  bond  w4iich  existed 
prior  to  the  war  between  the  producing,  financing,  and 
transportation  interests  of  Germany,  and  to  some  ex- 
tent those  of  Great  Britain,  made  those  countries  power- 
ful in  selling  their  goods  abroad. 

Great  Britain's  strength  in  foreign  trade  came  from 
several  sources.  She  was  first  in  the  field  and  established 
many  valuable  and  important  connections.  Her  mer- 
chant marine  has  been  at  all  times  one  of  the  important 
media  in  developing  foreign  markets.  The  Marine  De- 
partment of  the  Board  of  Trade  is  the  Government  body 
that  deals  directly  with  shipping  interests.  The  British 
have  established  excellent  liner  connections  with  Canada 
and  the  United  States,  South  America,  the  Orient, 
Australasia,  Africa,  and  Europe,  and  in  addition  there 
are  thousands  of  British  tramps  and  freighters  which 
traffic  in  and  out  of  every  harbor  in  the  world.  The  ex- 
tensive organization  of  Lloyds  has  made  it  a  leading 
factor  in  the  commercial  life  of  England  and  the 
dominant  element  in  international  marine  insurance. 

Originally  British  manufacturers  received  a  large  part 
of  their  orders  through  their  banking  connections.  The 
financial  organization  of  Great  Britain  in  international 
trade  is  the  most  comprehensive  in  the  world.  It  affords 
to  exporters  and  importers  credit  facilities  in  all  parts 
of  the  world,  and  merchants  in  the  most  remote  regions 
have  found  these  banking  connections  of  invaluable  as- 

159 


COMMERCIAL  POLICY 

sistance  to  them  in  furthering  British  trade.  One  of 
the  important  items  in  developing  foreign  trade  is  the 
ability  of  a  country  to  extend  credit.  Foreign  transac- 
tions are  time-consuming,  and  trade  credits  of  six,  nine, 
and  12  months  are  not  uncommon.  The  British  banks 
have  special  facilities  for  handling  these  credit  risks, 
and  have  thereby  been  of  valuable  assistance  to  the 
British  business  men. 

The  unification  of  Germany  in  1871  gave  a  tremendous 
impetus  to  her  industrial  activities.    Her  leaders  turned 
their  attention  in  particular  to  foreign  trade.     In  a 
systematic  way  they  took  steps  to  develop  it.    The  central 
ideas  underlying  their  methods  were  cooperation  and 
efficiency  in  selling,  together  with  scientific  production. 
They  developed  a  merchant  marine,  established  foreign 
banks,    and    made    foreign    investments.     Their    real 
triumph,   however,   came   in   coordinating   the   various 
financial,  transportation,  and  industrial  interests  of  the 
country  into  effective  selling  machines.     The  ''cartel'' 
(which  is  a  combination  to  control  the.  market)  became 
the  dominant  form  of  industrial  organization.     Cartels 
were  organized  in  practically  every  industry,  and  the 
syndicate  or  selling  cartel  became  the  chief  medium 
through  which  German  goods  were  marketed,  both  at 
home  and  abroad.     In  addition,  large  associations  of 
business  men  were  formed.    Chief  among  these  were  the 
Central  Association  of  German  Manufacturers,  the  Bund 
der  Industriellen,  and  the  Hansa-Bicnd.    Associations, 
cartels,  and  special  export  selling  agencies  were  devel- 
oped among  the  allied  and  competing  German  manufac- 
turers.   Organized  buying  was  also  perfected.    The  steel 
syndicate  in  Germany,  for  example,  was  one  of  the  most 
successful  cooperative  organizations.     It  was  organized 
in  1904  and  practically  monopolized  the  production  and 

160 


I 


EXPORT  TRADE 

distribution  of  semi-manufactured  steel  products.     It 
included  31  companies.    Each  member  of  the  combina- 
tion had  a  quota  allotted  to  him,  based  on  the  amount 
of  crude  steel  originally  allotted  to  him  by  the  agree- 
ment.   The  syndicate  established  an  extremely  low  sell- 
ing cost.    By  a  uniform  system  of  cost  accounting  and 
standardization  of  products,  as  well  as  by  model  busi- 
ness management  in  general,  unnecessary  waste  was 
virtually   eliminated    in    production    and    distribution. 
About  this  syndicate  were  grouped  a  number  of  allied 
combinations,  cartels  in  other  industries  and  commercial 
houses  in  foreign  countries.     It  is  generally  conceded 
that  the  steel  syndicate  was  one  of  the  most  important 
factors  in  German  export  trade  before  the  war.     Its 
export  business  was  handled  exclusively  by  a  common  ex- 
port agency  at  Diisseldorf,  which  was  considered  one 
of  the  most  efficiently  organized  of  all  cartel  export 
agencies.    It  fixed  prices,  allotted  orders  to  the  different 
plants    (with  due  consideration  of  their  geographical 
location,  special  adaptability  to  certain  lines,  and  other 
factors),   and  systematically  promoted   and  regulated 
the  whole  export  business. . 

One  of  the  basic  economic  effects  of  the  war  about 
which  we  may  speak  with  some  confidence  is  that  it  has 
increased  industrial  cooperation.  The  nations  are  not 
going  back  into  the  antiquated  and  outworn  methods  of 
individualized  industry  and  marketing  which  before  the 
war  they  — some  more,  some  less  — were  discarding. 
European  countries  were  planning  while  the  military 
struggle  was  still  on  to  further  their  economic  inter- 
ests. Governments  were  actively  interested  in  these 
plans.  In  so  far  as  they  are  based  on  principles  of 
equality  and  fair  competition,  in  so  far  as  they  are 

161 


COMMERCIAL  POLICY 

directed  toward  increasing  efficiency  in  merchandising, 
they  are  commendable.  In  so  far  as  they  are  based  on  a 
policy  of  discrimination  and  exclusiveness,  they  are  ob- 
jectionable.^ A  brief  reference  will  be  made  to  some 
of  these  post-war  plans  of  other  nations. 

The  British  Government  has  reorganized  the  Board 
of  Trade  and  established  a  Department  of  Overseas 
Trade  (Development  and  Intelligence)  which  is  con- 
nected not  only  with  the  Board  of  Trade  but  also  with 
the  Foreign  Office.  Under  its  supervision  fall  the  trade 
commissioners  and  the  commercial  attaches.  The  British 
consuls,  while  still  a  part  of  the  Foreign  Office,  are  put 
into  cooperation  with  the  Department  of  Overseas  Trade. 
The  object  of  the  consolidation  is,  of  course,  a  more 
vigorous  and  intelligent  promotion  by  the  Government 
of  British  foreign  trade.  A  second  important  innova- 
tion in  Great  Britain  was  the  establishment  of  the 
Ministry  of  Reconstruction  whose  work  it  is  to  co- 
ordinate all  activities  of  Government  departments 
that  relate  to  reconstruction.  Its  branch  dealing  with 
commerce  and  production  is  considering,  among  other 
important  subjects,  the  supply  and  control  of  raw  ma- 
terials, the  financing  of  British  after-war  trade,  the 
probable  extent  and  nature  of  the  demand  for  British 
products,  and  improvements  in  trade  organizations  to 
promote  more  economical  production  and  distribution. 

As  in  other  belligerent  countries,  there  has  been  a 
marked  cooperative  tendency  in  British  trade  and  in- 
dustry. During  the  war  the  Board  of  Trade  encouraged 
such  tendencies,  and  its  committees  have  recommended 
some  sort  of  amalgamation  for  export  business  in  the 
iron  and  steel,  textile,  electrical,  and  other  industries. 

1  For  example,  the  resolutions  of  the  Paris  Economic  Confer- 
ence, Appendix  II. 

162 


EXPORT  TRADE 

In  British  banking  also  there  has  been  a  pronounced 
movement  toward  concentration,  stimulated  by  the  desire 
to  finance  adequately  the  restoration  of  British  industry 
and  trade  to  their  pre-war  position  and  to  strengthen 
London  as  a  financial  center.  The  alternative  to  the 
amalgamation  of  private  banks  seems  to  be  a  Govern- 
ment bank.  The  financial  problem  is  thus  referred  to 
by  Sir  Edward  Ilolden,  President  of  the  London  City 
and  Midland  Bank : 

In  our  country  we  shall  be  faced  with  the  proposition  of  a 
Government  bank  being  established  or  of  relying  exclusively 
on   the  large  joint-stock  banks  to  carry  through  after-war 
operations.     It  seems  to  me  that,  if  the  joint-stock  bankers 
will  take  a  broad  view  of  this  question  by  making  liberal  ad- 
vances to  those  firms  which  are  managed  with  ability  and 
honesty  and  which  produce  good  balance  sheets,  we  might  be 
able  to  carry  our  industries  through  the  difficult  times  without 
the  establishment  of  any  Government  institution.      But  we 
must  not  overlook  the  fact  that  the  balance  sheets  of  firms  and 
companies  and  their  profit-and-loss  accounts  will  have  to  be 
carefully  examined  in  the  future,  because  there  will  be  a  great 
danger  that  a  fall  in  the  price  of  commodities  may  lead  to  the 
profit-and-loss  accounts  being  in  debit  instead  of  in  credit. 
In  many  of  these  cases  excess-profits  duty  will  have  been  paid 
on  profits  that  were  really  due  to  high  prices,  and  proper  con- 
sideration should  be  given  to  them  if  prices  fall  and  profit-and- 
loss  accounts  begin  to  show  debit. 

One  of  the  best  known  war  publications  of  the  British 
Government  was  the  final  Report  of  the  Committee  on 
Commercial  and  Industrial  Policy  after  the  War.^  It 
discussed  the  position  of  British  trade  and  industry  in 
1913 ;  the  manner  in  which  Imperial  resources  might  be 
further  developed  and  the  supplies  of  important  raw 
materials  assured;  essential  industries;  the  treatment  of 

2 British  Blue  Book,  Cd.  9035   (1918). 

163 


COMMERCIAL  POLICY 

aliens,  including  enemy  subjects,  in  respect  of  certain 
commercial  and  industrial  occupations  in  Great  Britain ; 
the  internal  reorganization  of  industry  and  the  assistance 
that  may  be  rendered  by  the  Government  in  promoting 
it;  the  question  of  financial  facilities  for  trade,  and 
the  bearing  of  taxation  upon  industrial  development; 
the  general  policy  that  should  be  adopted  by  the  State 
in  regard  to  the  manufacturing  and  commercial  interests 
of  the  British  Empire,  with  special  reference  to  the 
future  safety  of  the  Empire;  the  prevention  of  ** dump- 
ing;" the  safe-guarding  of  important  staple  industries; 
the  tariff;  position  of  export  trade;  imperial  preference, 
and  commercial  treaties;  and  the  proposals  for  the 
adoption  of  the  metric  system  of  weights  and  measures 
and  the  introduction  of  a  decimal  coinage. 

In  France  the  rehabilitation  of  foreign  trade  will 
doubtless  be  subordinated  to  the  more  urgent  necessity 
of  reestabishing  the  industrial  life  of  the  devastated 
parts  of  the  northern  provinces.  France's  chief  export 
trade,  however,  important  as  it  is,  is  concerned  with 
products  in  which  comparatively  little  foreign  competi- 
tion is  encountered.  French  style  and  quality  create  for 
French  goods  a  more  or  less  separate  market.  The  ex- 
porters of  Great  Britain,  Germany,  Japan,  and  the 
United  States,  on  the  other  hand,  are  frequently  seeking 
markets  for  highly  competitive  articles  in  the  sale  of 
which  price,  credit  terms,  and  methods  of  distribution 
are  apt  to  be  of  more  importance  than  reputation,  design, 
and  trade  goodwill.  Cooperative  effort  in  selling,  there- 
fore, is  likely  to  develop  further  in  these  countries  than 
in  France. 

One  of  the  most  significant  features  of  German  war- 
time economic  development  as  it  may  affect  after-war 
foreign  trade  is  the  voluntary  and  in  some  cases  the 

164 


EXPORT  TRADE 

compulsory  syndication  of  a  number  of  important  in- 
dustries.    The  result  has  been  to  concentrate  business 
in  the  most  productive  mills.     This  amalgamation  has 
been  particularly  drastic  in  the  shoe  industry  and  in  the 
various  branches  of  the  textile  industry.     The  after-war 
trade  plans  formulated  by  the  Eeichswirtschaftsamt,  the 
separate  Ministry  created  to  deal  with  economic  policies, 
and  other  German  organizations  of  this  nature  have 
naturally  been  profoundly  influenced  by  the  complete 
military  capitulation  and  the  change  in  form  of  govern- 
ment.   Some  of  these  after-war  projects  were  of  a  grandi- 
ose character,  being  predicated  upon  the  fulfillment  of 
the  Mittel   Europa   dream   of   economic   and    political 
hegemony  from  Berlin  to  Bagdad,  upon  German  colonial 
possessions,  and  upon  a  large  German  merchant  marine. 
"Whatever  may  be  the  measures  taken  by  the  new  German 
State  to  regain  foreign  markets,  it  is  reasonable  to  as- 
sume that  the  traditional  German  cooperative  tendencies 
in  trade  and  industry  will  persist. 

The  spectacular  growth  of  Japanese  export  trade  dur- 
ing the  war  has  already  been  commented  upon.^  The 
Japanese  Government  and  private  organizations  are  con- 
sidering how  this  trade  may  be  retained  and  extended. 
The  city  of  Yokohama  has  established  a  foreign-trade 
bureau  with  extensive  plans  for  a  great  commercial 
museum  and  for  comprehensive  trade  promotion.  Ex- 
hibits in  promising  export  markets  are  planned.  The 
Japanese  are  aware  of  the  difficulties  they  will  have  in 
retaining  the  trade  gains  they  made  while  European  com- 
petitors were  applying  their  economic  energies  to  defeat- 
ing Germany.  Except  in  a  few  specialized  articles,  such 
as  habutai  silks,  Japan's  success  is  dependent  upon 
ability  to  quote  very  low  prices. 

3  See  Chapter  VI.  ~ 

165 


COMMERCIAL  POLICY 


EXPORT  TRADE 


The  Canadian  Government  has  for  some  time  shown 
an  intelligent  interest  in  the  promotion  of  foreign  trade, 
A  Trade  Commission  has  been  established  to  consider 
trade  problems,  particularly  with  reference  to  exports. 
Trade  investigators,  similar  to  our  own,  have  been  sent 
to  promising  foreign  markets. 

The  growth  of  American  export  trade  during  the  war 
was  phenomenal.  The  following  figures  give  some  idea 
of  the  growth,  although  it  must  be  remembered  that  the 
rise  in  prices  makes  the  increase  in  value  relatively 
greater  than  the  increase  in  quantity : 

Exports  prom  the  United  States,  1913-18* 


Kaw  materials  (except 

foodstuffs) 
Food  products    (crude 

and  manufactured) 
Semi-manufac  t  u  r  e  d 

products         (except 

foodstuffs) 
Manufactured       goods 

(except    foodstuffs) 


1913 


1916 


$731,758,513 
503,111,639 

408,806,949 
776,297,360 


$535,952,043 
979,697,253 

657,923,305 


1918 


$897,328,794 
1,528,989,991 

1,203,916,333 


1,998,298,249  I  2,191,137,089 


*  During  the  war  the  shipments  of  goods  in  Army  and  Navy 
transports  were  not  recorded  in  export  statistics.  Great  quantities 
of  goods  were  thus  sent  to  Europe. 

In  addition  to  the  increase  in  volume,  there  has  been 
an  interesting  and  significant  change  in  the  variety  and 
destination  of  American  exports.  Soon  after  the  out- 
break of  the  war  in  1914  the  embargoes  of  the  belligerent 
countries  resulted  in  a  much  greater  demand  for  Ameri- 
can manufactures  in  neutral  markets.  Thus  it  came 
about  that  United  States  goods  never  before  carried  in 
stock  by  dealers  in  South  America,  China  and  other  Far 
Eastern  countries,  and   elsewhere  were  introduced  to 

166 


foreign  consumers.  Such  characteristic  American 
products  as  automobiles,  typewriters  and  other  office  ap- 
pliances, sewing  machines  and  other  labor-saving  devices, 
agricultural  implements,  and  industrial  machinery  of 
various  kinds  had  long  been  favorably  known  abroad. 
But  during  the  last  four  years  our  export  figures  have 
included  such  comparatively  unfamiliar  articles  as 
woolen  goods,  jewelry,  dyes  and  other  chemical  products, 
miscellaneous  paper  goods,  and  pharmaceutical  products. 
The  following  figures  which  show  the  increase  in  Ameri- 
can export  trade  from  the  fiscal  year  1913  to  the  close 
of  the  fiscal  year  1918  according  to  destination  are  inter- 
esting evidences  of  the  large  expansion  of  our  export 
trade  in  manufactured  products : 

Exports  from  the   United  States  by  Geographic   Divisions, 

1913-18 
(In  thousands  of  dollars) 


Europe 

Canada 

Central  America 

South  America 

Cuba  and  West 
Indies 

Australia,  New 
Zealand  and 
British  Oceania 

Asia 


1913 


$1,479,075 

415,449 

40,220 

146,148 

99,473 


52,708 
115,057 


1916 


$2,999,305 

468,785 

41,704 

180,175 

163,516 


74,218 
278,611 


1918 


$3,738,231 

778,510 

44,310 

314,564 

293,075 


84,712 
447,457 


Per  Cent, 
of  In- 
crease, 

1918  over 
1913 


152.74 
87.39 
10.16 

115.23 

194.62 


60.71 
288.90 


It  will  be  noted  that  the  tremendous  increase  in  our 
exports  to  Europe  was  proportionately  exceeded  in  the 
case  of  shipments  for  Asia  and  the  West  Indies  and 
was  nearly  equalled  by  the  increase  in  exports  to  South 
America.     It  should  also  be  remembered  that  our  ex- 

167 


COMMERCIAL  POLICY 


ports   to   countries   outside   Europe  include   a   larger 
proportion  of  general  manufactures  than  of  foodstuffs, 
raw  materials  for  industry,  and  munitions  of  war.     The 
very  small  gain  in  our  trade  with  Central  America  is 
attributable  to  the  decreased  purchasing  power  of  those 
countries,  resulting  from  the  depression  of  the  coffee 
market  since  1914  and  the  general  cessation  of  all  enter- 
prises requiring  foreign  capital.    The  value  of  American 
exports  entering   Central  American  countries  has  in- 
creased steadily,  however,  since  1913.    In  Australia  and 
New  Zealand  the  comparatively  small  increase  may  be 
attributed  partly  to   curtailed   imports   of  articles   of 
luxury  during  the  war  and  partly  to  a  natural  tendency 
to  give  preference  to  products  of  the  British  Empire, 
but  mostly  to  the  lack  of  shipping. 

The  figures  on  the  opposite  page  indicate  the  growth 
of  our  export  trade  in  a  number  of  important  commod- 
ities other  than  munitions  of  war,  the  figures  being  given 
in  even  millions,  except  where  indicated  by  decimals. 

American  industries  that  have  expanded  rapidly 
under  war  demands  are  in  many  cases  looking  to  export 
markets  to  take  their  surplus  product  after  the  war. 
They  expect  to  use  their  excess  productive  capacity  in 
supplying  such  markets  as  South  America  and  the 
Orient.  For  certain  lines  of  industry  a  valuable  market 
may  be  offered  in  Europe,  where  intensive  work  of  recon- 
struction must  necessarily  be  carried  on.  Factory  ma- 
chinery will  have  to  be  replaced,  devastated  areas  rebuilt, 
and  large  quantities  of  equipment  and  supplies  in  many 
lines  will  have  to  be  replaced  as  a  result  of  the  destruc- 
tion of  the  war. 

If  the  United  States  is  to  retain  a  fair  share  of  the 
world's  trade,  the  logic  of  our  position  is  clear.    Compe- 

168 


EXPORT  TRADE 


Exports  from  the  United  States  by  Chief  Products,  1913-18 
__^^  (In  millions  of  dollars) 


Article 


Cotton  textiles 

Electrical  machinery 

Binder  twine 

Dyes  and  dyestuffs 

AH  chemicals,  drugs,  dyes,  and  medicines 
Cutlery 

Gas  engines 

Mining  machinery 

Bolts,  nuts,  rivets,  and  washers 

Sugar-mill  machinery 

Textile  machinery 

Miscellaneous  machinery  and  parts 

Cast  iron  pipe  and  fittings 

Structural  iron  and  steel 

Tin-plate  and  manufactures  of  tin-plate 

Tools,  miscellaneous 

Wire  (not  barbed) 

Paints,  colors  and  varnishes 

Newsprint  paper 

Paper,  all  other  kinds 

Cigarettes 


1913 

31 

27 

8 

0.3 

*79 

1 

11 

10 

1.7 

3 

2 

23 

** 

16 
6 

13 

6 

8 

2.5 

22 
3 


1916 


1918 


*  Figure  for  1915. 

Not  shown  separately. 


46 

103 

30 

55 

11 

20 

5 

17 

109 

152 

4 

6 

12 

34 

8 

12 

3 

6 

6 

12 

3 

6 

32 

41 

3 

9 

12 

24 

19 

58 

15 

23 

16 

21 

11 

17 

3 

10 

29 

50 

4  I 

18 

** 


tition  for  foreign  markets  will  continue  keen.  Our  lead- 
ing  foreign  competitors  are  resorting  to  cooperative 
effort  and  Government  support.  To  meet  this  situation 
our  manufacturers,  in  the  first  place,  should  be  encour- 
aged to  form  cooperative  associations.  They  cannot  en- 
gage individually  in  commercial  rivalry  with  the  consoli- 
dated, trained  trading  interests  of  Europe.  Congress 
has  recognized  the  logic  of  our  position  and  enacted  a 
law  permitting  the  association  of  competitors  as  well 
as  non-competitors  for  the  purpose  of  promoting  export 
trade.^  This  Act,  known  as  the  Webb  Act,  declares  that 
nothing  contained  in  the  Sherman  Anti-Trust  Act  shall 

*  Quoted  in  Appendix  VIII. 

169 


COMMERCIAL  POLICY 

be  construed  as  declaring  to  be  illegal  an  association 
entered  into  for  the  sole  purpose  of  engaging  in  export 
trade  and  actually  engaged  solely  in  such  export  trade, 
or  an  agreement  made  or  act  done  in  the  course  of  export 
trade  by  such  association,  provided  that  the  export  trade 
of  no  domestic  competitor  is  restrained  and  provided 
trade  within  the  United  States  is  not  restrained,  as, 
for  example,  by  unduly  enhancing  or  depressing  prices. 
The  enactment  of  this  law,  however,  will  not  assure  the 
success  of  American  export  trade.  It  merely  removes 
an  obstacle.  The  responsibility  for  the  constructive 
work  of  building  up  export  associations  and  for  their 
successful  operation  rests  primarily  with  American  busi- 
ness men. 

A  number  of  objections  have  been  raised  to  export 
associations,  but  most  of  the  opposition  is  the  result  of 
a  failure  to  understand  their  purpose  and  the  limitations 
that  will  necessarily  be  thrown  around  them.  Many  of 
the  arguments  against  them,  when  reduced  to  the  last 
analysis,  are  arguments  against  export  trade.  If  it  be 
admitted  that  export  trade  is  desirable,  it  would  seem 
to  follow  necessarily  that  our  business  men  should  be 
permitted  to  promote  such  trade  by  the  adoption  of 
means  that  will  enable  them  to  compete  on  an  equality 
with  their  foreign  rivals.  In  most  of  the  fields  into  which 
they  will  go,  their  work  must  perforce  be  pioneer  work, 
and  must  be  carried  on  against  the  entrenched  and 
powerful  opposition  of  European  concerns.  As  a  people 
we  have  an  interest  in  placing  our  own  business  men 
on  an  equality  —  but  only  on  an  equality  —  with  their 
powerful  competitors  abroad.  Competition  in  foreign 
trade  is  keen,  and  we  owe  it  to  American  business  men 
to  permit  such  organization  among  them  as  will  enable 
them  to  meet  their  foreign  rivals  in  price,  quality,  and 

170 


EXPORT  TRADE 

service.    Such  was  the  purpose  that  led  to  the  enactment 
of  the  law  permitting  export  associations. 

The  Webb  Act  was  the  initial  step  toward  enabling 
American  business  men  to  adopt  a  permanent  export 
policy ;  the  initiative  and  imagination  of  American  busi- 
ness men  may  be  depended  upon  to  do  more.  The  small 
American  manufacturer,  as  a  rule,  has  in  the  past  looked 
upon  the  foreign  market  as  a  place  where  he  might 
dump,  usually  through  commission  houses,  whatever  sur- 
plus product  he  could  not  sell  in  the  home  market.  This 
sort  of  export  business  is  unsatisfactory,  and  in  the 
long  run  has  few  beneficial  results.  Export  business 
must  be  taken  seriously.  Technical  men  must  be  em- 
ployed to  help  in  the  merchandising  of  goods.  Particu- 
lar foreign  markets  must  be  studied.  The  customs, 
needs,  and  prejudices  of  the  foreign  buyer  must  be 
learned.  Products  must  be  standardized,  not  according 
to  American  ideas,  but  according  to  the  ideas  of  the 
foreign  buyer.  In  many  cases  goods  must  be  produced 
primarily  for  export.  Cooperative  effort  itself  will 
stimulate  economy,  encourage  uniformity  and  standard- 
ization, permit  the  accumulation  and  use  of  extensive 
knowledge  relating  to  the  customs  and  needs  of  foreign 
peoples ;  it  will  help  to  stabilize  American  industry  and 
to  reduce  the  reaction  and  suffering  that  come  from 
industrial  depression  and  a  limited  market ;  it  will  per- 
mit the  employment  of  men  of  greater  ability  for  the 
purpose  of  selling  American  goods  abroad;  and  it  will 
lead  to  the  development  of  new  fields  and  the  extension 
of  American  enterprises  in  foreign  countries. 

Foreign  trade  requires  not  only  cooperation  among 
the  exporters  themselves,  but  also  the  support  of  large 
commercial   organizations   and   the  Government   itself. 

171 


COMMERCIAL  POLICY 


EXPORT  TRADE 


Merely  removing  the  obstacle  of  the  auti-trust  legislation 
IS  not  sufficient;  something  affirmative  should  be  done. 
Commendable  work  is  being  done  toward  promoting 
American  export  trade  by  such  non-governmental  organ- 
izations as  the  National  Foreign  Trade  Council,  the 
National  Association  of  Manufacturers,  the  American 
Manufacturers^  Export  Association,  the  Merchants^  As- 
sociation of  New  York,  the  Chamber  of  Commerce  of  the 
United  States  of  America,  and  the  Philadelphia  Com- 
mercial Museum. 

The  National  Foreign  Trade  Council  is  composed  of 
leading  merchants,  manufacturers,  farmers,  railroad  and 
steamship  men,  and  bankers,  representing  all  sections 
of  the  United  States  and  collectively  standing  for  the 
general  interest  in  foreign  trade.    The  announced  pur- 
pose of  the  Council  is  *Ho  endeavor  to  coordinate  the 
loreign  trade '  activities  of  the  nation  and  collaborate 
with  the  Chamber  of  Commerce  of  the  United  States 
of  America"  in  order  that  *'the  industrial,  commercial, 
transportation  and  financial  interests  should  cooperate 
in  and  endeavor  to  extend  our  foreign  trade.''     The 
Council  has  a  permanent  secretary,  issues   important 
reports,  and  holds  an  annual  meeting  which  is  a  unique 
clearing  house  for  the  discussion  of  the  larger  problems 
ot  foreign  trade.     The  Foreign  Trade  Department  of 
the  National  Association  ot  Manufacturers  maintains 
a  permanent  office  staff  and  keeps  in  touch  with  trade 
experts  both  in  the  United  States  and  abroad.    It  gives 
particular  attention  to  foreign  credits  and  collections, 
translation  for  export  trade,  foreign  freight  rates,  and 
toreign  patents  and  trade-marks.    It  renders  credit  re- 
ports,  assists  in  the  collection  of  foreign  debts  requiring 
litigation,  and  by  supplying  current  freight  rates  makes 
possible  the  quotation   of  c.i.f.    (cost,   insurance,   and 

172 


freight)  prices.  A  third  important  national  association 
for  foreign  extension  is  the  American  Manufacturers' 
Export  Association.  It  also  maintains  a  department  de- 
voted to  foreign  credit  information,  patent  and  trade- 
mark requirements,  transportation  rates,  and  similar 
information.  The  Chamber  of  Commerce  of  the  United 
States  of  America  has  also  a  foreign-trade  information 
service,  and  from  time  to  time  issues  circulars  regarding 
current  problems  abroad.  The  Foreign  Trade  Bureau 
of  the  Philadelphia  Commercial  Museum,  which  should 
not  be  overlooked  in  any  survey  of  foreign-trade  organi- 
zations, is  well  equipped  to  assist  those  interested  in 
export  trade.  It  prepares  catalogues  and  advertising 
material,  translates  correspondence,  selects  foreign 
agents,  furnishes  credit  reports,  and  lists  foreign  trade 
opportunities. 

These  organizations  do  not  by  any  means  exhaust  the 
list  of  those  interested  in  export  trade.  More  local,  but 
nevetheless  important,  are  the  foreign-trade  departments 
of  the  chambers  of  commerce  of  some  of  our  leading  cities. 
The  Merchants'  Association  of  New  York  is  important 
because  of  its  location  in  the  great  metropolis,  but  the 
Chambers  of  Commerce  of  Boston,  Cincinnati,  Cleveland, 
Chicago,  Detroit,  Dayton,  Los  Angeles,  Philadelphia, 
Portland,  Oregon,  Pittsburgh,  Seattle,  St.  Louis,  San 
Francisco,  and  other  cities  are  also  important.  The 
larger  national  trade  associations  of  the  country  have 
in  many  cases  taken  an  active  interest  in  foreign  trade. 
Among  those  that  have  given  special  attention  to  their 
own  more  complicated  foreign-trade  problems  may  be 
mentioned  the  National  Lumber  Manufacturers'  Associa^ 
tion,  the  National  Canners'  Association,  the  Tanners' 
Council,  the  Textile  Alliance,  the  Manufacturing 
Jewelers'  Board  of  Trade,  the  National  Boot  and  Shoe 

173 


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COMMERCIAL  POLICY 


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EXPORT  TRADE 

Manufacturers'  Association,  the  New  England  Shoe  and 
Leather  Association,  and  the  National  Implement  and 
Vehicle  Association.  In  a  survey  of  non-governmental 
bodies  for  promoting  our  foreign  trade  the  American 
chambers  of  commerce  in  various  foreign  commercial 
centers  should  not  be  overlooked.  The  foremost  is  that 
in  Paris,  which  has  been  promoting  American  trade 
interests  in  France  since  1894.  Other  American  cham- 
bers of  commerce  in  Europe  include  those  of  London, 
Naples,  Milan,  Amsterdam,  Barcelona,  and,  before  the 
war,  Berlin,  Brussels,  and  Constantinople.  There  are 
also  American  chambers  of  commerce  in  Buenos  Aires, 
Rio  de  Janeiro,  and  Shanghai. 

There  has  been  a  rapid  extension  of  American  bank- 
ing interests  in  foreign  countries  during  the  last  few 
years.  The  value  of  foreign  banking  institutions  to  a 
great  trading  and  buying  nation  such  as  the  United 
States  is  patent.  At  the  end  of  the  most  exhaustive 
struggle  in  history,  the  United  States^,  as  the  great  cred- 
itor nation  of  the  world,  will  find  still  greater  use  for 
banks  established  abroad  by  American  capital.  The 
number  .of  branch  banks  abroad  has  been  greatly  in- 
creased, and  there  is  under  consideration  the  establish- 
ment of  discount  companies  handling  paper  covering 
foreign-trade  transactions  somewhat  similar  to  the  well- 
known  discount  houses  of  London.  The  present  distribu- 
tion of  American  banking  institutions  abroad  is  shown 
in  the  table  on  page  174.  The  figures  indicate  only 
branches,  omitting  sub-branches,  of  which  there  are  sev- 
eral in  some  countries. 


The  American  Government  itself,  particularly  through 
the  Bureau  of  Foreign  and  Domestic  Commerce,  the  Con- 
sular Service  of  the  State  Department,  and  the  Foreign 

175 


COMMERCIAL  POLICY 

Trade  Adviser   of   the   State   Department   have   done 
effective  work  in  promoting  export  trade.     The  Bu^-eau 
of  Foreign  and  Domestic  Commerce  is  the  authorized 
Government  agency  for  distributing  all  commercial  in- 
formation collected  by  the  Consular  Service  of  the  De- 
partment of  State  and  by  its  own  commercial  attaches 
and  trade  commissioners.     This  information  is  dissemi- 
nated through  a  daily  publication  known  as  Commerce 
Reports,  special  monographs,  and  unpublished  bulletins 
which  are  sent  to  those  particularly  interested.     The 
*  Bureau  of  Foreign  and  Domestic  Commerce  has  district 
offices  in  New  York,  Chicago,  Boston,  St.  Louis,  San 
Francisco,  Seattle,  and  New  Orleans. 

The  foreign  investigations  conducted  by  the  Bureau 
have  been  of  particular  value  to  American  manufacturers 
and  exporters.  The  commercial-attache  service  of  the 
Bureau  was  inaugurated  in  1914.  These  attaches,  at 
present  located  in  London,  Paris,  The  Hague,  Copen- 
hagen, Rome,  Madrid,  Tokio,  Peking,  Buenos  Aires,  Rio 
de  Janeiro,  and  Lima  (and  before  the  war  at  Berlin 
and  Petrograd),  are  commercial  advisers  of  the  ambas- 
sadors  and  ministers  and  general  promoters  of  the  larger 
commercial  interests  of  the  United  States.  The  Bureau 
IS  making  extensive  plans  for  studying  foreign  markets 
in  behalf  of  American  manufacturers. 

On  February  28,  1919,  President  Wilson  approved  the 
establishment  of  a  central  Foreign  Trade  Committee  to 
be  composed  of  representatives  from  each  of  those  de- 
partments, commissions,  and  administrative  boards  of 
the  Federal  Government  which  in  any  way  handle  for- 
eign trade  questions.  The  purpose  of  the  Committee 
is  to  consider  and  make  suggestions  concerning  foreign 
trade  and  commerce  with  a  view  to  promoting  full  co- 
ordination of  effort. 

176 


. 


•^ 


EXPORT  TRADE 

The  work  of  the  Pan-American  Union  should  also  be 
mentioned  in  connection  with  trade  promotion.  Since 
its  organization  in  1907  it  has  done  exceptionally  good 
work  in  developing  closer  commercial  relations  between 
the  United  States  and  Latin  America. 

Not  the  least  among  the  ways  in  which  the  Government 
may  promote  the  commerce  of  the  United  States  is  by 
the  enactment  of  legislation  permitting  the  establishment 
of  free  ports  where  required  by  the  national  needs.  A 
free  port  or  zone  is  an  instrumentality  of  commerce  and 
does  not  affect  the  established  tariff  policy  of  the  country. 
The  Tariff  Commission  says  :^ 

A  free  zone  may  be  defined  as  an  isolated,  inclosed,  and 
policed  area,  in  or  adjacent  to  a  port  of  entry,  without  resident 
population,  furnished  with  the  necessary  facilities  for  lading 
and  unlading,  for  supplying  fuel  and  ship's  stores,  for  storing 
goods  and  for  reshipping  them  by  land  and  water;  an  area 
within  which  goods  may  be  landed,  stored,  mixed,  blended,  re- 
packed, manufactured,  and  reshipped  without  payment  of 
duties  and  without  the  intervention  of  customs  oflficials.  It 
is  subject  equally  with  adjacent  regions  to  all  the  laws  relat- 
ing to  public  health,  vessel  inspection,  postal  service,  labor 
conditions,  immigration,  and  indeed  everything  except  the 
customs. 

The  purpose  of  the  free  zone  is  to  encourage  and  expedite 
that  part  of  a  nation's  foreign  trade  which  its  government 
wishes  to  free  from  the  restrictions  necessitated  by  customs 
duties.  In  other  words,  it  aims  to  foster  the  dealing  in  foreign 
goods  that  are  imported,  not  for  domestic  consumption,  but 
for  reexport  to  foreign  markets,  and  for  conditioning,  or  for 
combining  with  domestic  products  previous  to  export. 

While  the  dangers  connected  with  unrestrained  com- 
petition among  nations  should  be  recognized,^  the  error 

5  < '  Free  Zones  in  Ports  of  the  United  States, ' '  Report  of  United 
States  Tariff  Commission  to  the  Senate  Committee  on  Commerce 
with  reference  to  Senate  Bill  4153,  62d  Cong.,  2d  Sess.  (1918). 

«  Chapters  XI  and  XII. 

177 


w 


COMMERCIAL  POLICY 

of  condemning  international  trade  and  its  proiQotion 
should  not  be  made.     It  may  be  that  the  system  is  wrong 
and  that  Governments,  as  has  been  suggested,  should 
make  buying  and  selling  between  nations  a  Government 
monopoly.    In  the  absence  of  such  drastic  action,  how- 
ever, It  IS  incumbent  upon  each  nation  to  further  its 
own  interests  in  the  rivalry  for  markets.    Just  as  there 
are  some  ways  by  which  export  trade  should  not  be  pro- 
moted, there  are  some  ways  by  which  it  should      Un- 
less America  has  commercial  interests  abroad,  her  moral 
influence  in   the   elimination   of  unfair   practices  and 
discrimination  in  international  trade  will  be  w.eak     The 
American  public  asks  that  unfair  methods  be  avoided 
in  export  trade,  but  it  is  willing  that  our  export  interests 
be  pressed  with  the  utmost  vigor  and  promoted  by  every 
legitimate  means.     The  extension  of  American  export 
trade  m  manufactured  good  is  not  necessarily  made  at 
the  expense  of  our  foreign  competitors.    The  consuming 
capacity  of  most  of  the  importing  countries  will  increase" 
With  the  normal  growth  of  population  and  wealth  in  the 
older  countries  and  the  continued  development  of  new 
countries  like  Argentina,  Brazil,  and  the  British  self- 
governing  dominions,  the  volume  of  international  trade 
will  grow  steadily.     Moreover,  the  probable  increased 
purchasing  power  of  the  masses  in  countries  such  as 
China  and  India,  where  modern  industrialism  is  sup- 
planting  primitive  methods,  will  doubtless  be  an  im- 
portant factor  in  the  world  trade  of  the  future. 

National  and  business  interests  run  parallel  up  to  a 
certain  point.  The  policy  of  the  Government  fighting 
business  is  antiquated.  Industry  and  trade  are  not 
things  apart  from  our  national  life  but  an  essential  ele- 
ment of  it.  But  in  recognizing  frankly  the  desirability 
of  foreign  trade  and  the  necessity  for  organization  in 

178 


EXPORT  TRADE 

many  lines,  we  must  avoid  the  extreme  of  approving  all 
that  may  be  done  in  the  guise  of  export  organization. 
Our  duty  is  not  done  when  business  men  have  been 
allowed  to  organize  in  order  to  meet  on  an  equality  their 
foreign  competitors.  The  day  of  letting  business  alone 
or  ignoring  it  is  passed.  Liberty  in  foreign  trade  is  as 
much  an  anachronism  as  it  is  in  domestic  trade.  We 
have  removed  the  restraints  of  the  Sherman  law  in  export 
trade  because  they  applied  a  wholly  inconsistent  and  un- 
desirable rule  in  trade  between  nations.  But  that  is 
only  one  side  of  the  shield ;  the  other  is  strict  regulation 
and  control.'^  We  have  permitted  our  business  men  to 
organize  not  that  they  may  exploit  foreign  peoples,  not 
that  they  may  make  exorbitant  profit,  not  that  they  may 
go  forward  and  embroil  this  country  in  economic  diffi- 
culties with  other  peoples,  but  that  our  resources  and 
industrial  development  may  continue  along  sound  lines 
increasing  the  prosperity  of  the  American  people  and 
assisting  other  nations  in  their  upward  progress  toward 
material  prosperity. 


7  See  Chapter  XI. 


r 


(1 


II 


# 


CHAPTER  X 

BARGAINING   TARIFFS   TO  PREVENT  DISCRIMINATIONS 

Commercial  treaty  provision  of  the  Tariff  Act  of  191?  7 
ryZT^toe'r'^:^'  duties  -  General  and  cfntn^iri't^^iff 
of  Franop  A w  J  ~  ^^fximum  and  minimum  tariff  system 
_ill''''^~¥''^^-^^''^^^<^-^^iion  clause  in  commercial  treaties 

Tariff  discriminations  for  our  purpose  may  be  divided, 
broadly  speaking,  into  three  classes.     The  first  are  those 
that  are  not  generally  recognized  as  subjects  for  bargain- 
ing among  nations.     They  include  preferential  tariffs  or 
national  reciprocity  treaties  or  arrangements  that  are 
expressions  of  settled  policies  of  peoples  toward  their 
colonies  or  toward  other  nations.     Within  this  class  fall 
among  others,  preferential  tariffs  between  parts  of  the 
British  Empire,  the  colonial  tariffs  of  France,  and  the 
reciprocity  policies  of  the  United  States  under  the  Tariff 
Acts  of  1890  and  1897.     These  discriminations  rail    n 
essentially  international  question  and  will  be  considered 
when  the  world  aspects  of  commercial  policy  are  dis- 
msscCi, 

The  second  class  of  tariff  discriminations  are  concealed 
discriminations.  Sometimes  they  exist  in  the  adminis- 
tration  of  customsj;eguIations  or  in  the  enforcement  of 

1  Chapters  XIV-XVI. 

180 


BARGAINING  TARIFFS 

inspection  or  sanitary  laws.  On  ostensibly  sanitary 
grounds,  for  example,  Germany  from  1883  to  1891  pro- 
hibited the  importation  of  American  hogs,  pork,  and 
sausages.  In  reality  this  action  was  taken  to  protect 
the  German  agrarian  classes.  After  many  efforts  to 
remove  this  unjust  discrimination  against  American  pro- 
ducers Congress  enacted  a  bargaining  clause  which  was 
in  part  as  follows  (Sec.  5,  Meat  Inspection  Act  of  August 
30,  1890)  : 

That  whenever  the  President  shall  be  satisfied  that  unjust 
discriminations  are  made  by  or  under  the  authority  of  any 
foreign  State  against  the  importation  to  or  sale  in  such 
foreign  State  of  any  product  of  the  United  States,  he  may 
direct  that  such  products  of  such  foreign  States  so  discrim- 
inating against  any  product  of  the  United  States  as  he  may 
deem  proper  shall  be  excluded  from  importation  to  the  United 
States;  and  in  such  case  he  shall  make  proclamation  of  his 
direction  in  the  premises,  and  therein  name  the  time  when 
such  direction  against  importation  shall  take  effect,  and  after 
such  date  the  importation  of  the  articles  named  in  such  procla- 
mation shall  be  unlawful.  The  President  may  at  any  time 
revoke,  modify,  terminate,  or  renew  any  such  direction  as,  in 
his  opinion,  the  public  interest  may  require. 

Moreover,  the  Tariff  Act  of  1890  authorized  the  Presi- 
dent to  impose  penalty  duties  on  certain  products  when 
imported  from  countries  whose  treatment  of  American 
products  was  not  ** reciprocally  equal  and  reasonable.'^ 
To  forestall  the  application  of  these  laws  against  her, 
Germany,  in  the  Saratoga  Convention  of  1890,-  agreed 
to  remove  the  objectionable  discriminations.  Sometimes 
discriminations  are  concealed  in  tariff  classifications 
v/here,  under  the  guise  of  equality  of  treatment,  tariff 
rates  are  made  higher  on  the  goods  that  are  peculiarly 
the  products  of  one  country  and  lower  on  the  peculiar 

■  ■       —   ■  I     -  III     .         ■     III..I. —  ■ ■  '  1 1. -I.— I.  II      .1  .1—  I.I- -—I ■ -  I  ^iii... I  ,.  „._.    „„„ 

2  Sen.  Ex.  Doc.  119,  52d  Cong.,  1st  Sess.,  p.  110. 

181 


f 


COMMERCIAL  POLICY 

goods  of  another.      Germany's  bargain-tariff  schedules 
were  arranged  ingeniously  in  this  respect  so  that  in 
bargaining  she  need  give  only  the  minimum  of  conces- 
sions.    The  most  conspicuous  example  of  this  specializa- 
tion is  item  No.  103  of  her  conventional  tariff,  which 
fixes  a  special  rate  on  '4arge  dappled  mountain  cattle 
or  brown  cattle,  reared  at  a  spot  at  least  300  metres 
above  sea  level,  and  which  have  at  least  one  month's 
grazing  each  year  at  a  spot  at  least  800  metres  above  sea 
level. ' '    Under  this  provision  Alpine  cattle  from  Switzer- 
land were  admitted  at  a  low  rate  of  duty,  whereas  cattle 
irom  Russia,  The  Netherlands,  and  France  were  required 
to  pay  a  much  higher  rate.      Concealed  discriminations 
need  not  be  intentional.      There  have  been  high  tariff 
rates  in  the  American  tariff  acts  on  lumber,  for  example, 
which  in  theory  applied  to  all  countries  alike  but  which 
in  practice  affected  only  Canadian  interests.      The  pro- 
hibitive tariffs  on  canned  goods  in  certain  South  Ameri- 
can countries  result,  unintentionally  perhaps,  in  a  par- 
ticular hardship  to  the  American  canning  industry. 

As  will  be  pointed  out  later,^  concealed  discrimina- 
tions should  be  a  subject  for  investigation  by  an  inter- 
national commission.  Some  of  them  are  no  doubt  justi- 
fied on  domestic  grounds.  All  of  them,  nevertheless, 
should  be  given  publicity  by  an  impartial  commission 
in  order  that  the  injured  nation  may  take  such  action 
as  seems  wise,  either  by  negotiation  or  retaliation,  for  the 
purpose  of  removing  them. 

The  third  class  of  tariff  discriminations  are  those  open 
discriminations  that  may  be  removed  by  bargaining 
negotiations  between  the  nations  concerned.  They  are 
found  in  surtaxes  or  in  national  tariff  systems  containing 
discriminatory  tariff  rates  adopted  for  the  very  purpose 

3  See  Chapter  XVI. 

182 


I 


BARGAINING  TARIFFS 

of  providing  a  basis  for  bargaining  with  other  nations  for 
concessions.  Such  are  the  general  and  maximum  tariff 
schedules  of  certain  European  countries. 

It  is  clearly  the  duty  of  a  nation  so  to  organize  its  own 
economic  power  as  to  be  in  a  position  to  bargain  for  the 
removal   of   discriminations  falling  within  the  second 
and  third  classes.     In  some  degree  concealed  discrimina- 
tions raise  an  international  question,  but  in  last  analysis 
they  and  the  discriminations  of  the  third  class  must  be 
removed  by  national  action.      The  fear  of  penalties  is 
one  of  the  best  means  of  removing  them.     A  nation  un- 
ready to  bargain  for  equality  of  treatment  is  no  more 
likely  to  get  it  than  a  trader  is  likely  to  succeed  in  barter 
if  he  has  no  goods  to  offer  in  return.      The  duty  of  a 
nation  to  protect  itself  in  commercial  matters  cannot  be 
escaped  by  attempting  to  turn  over  to  an  untried  inter- 
national organization  the  work  of  removing  tariff  dis- 
criminations.     International  organization  is  desirable, 
but  in  seeking  an  international  solution  for  tariff  dis- 
criminations we  should  be  slow  to  abandon  such  effective 
means  of  preventing  discriminations  as  nations  them- 
selves may  employ.     One  method  of  enforcing  equality 
of  treatment  is  the  use  of  penalty  duties  to  be  applied  to 
those  nations  that  refuse  most-favored-nation  treatment. 
Perhaps  more  important  are  the  bargaining  tariff  sys- 
tems of  European  states.    These  systems,  supplemented 
by  the  European  interpretation  of  the  most-favored- 
nation  clause  in  commercial  treaties,  have  been  powerful 
factors  in  equalizing  trade  conditions  and  preventing 

trade  wars. 

Either  of  these  bargaining  methods  may  be  employed 
by  the  United  States.  The  first,  the  penalty-duty 
method,  can  be  adopted  without  a  general  revision  ot 

183 


I 


COMMERCIAL  POLICY 

the  present  tariff  law*  and  without  a  modification  of  our 
traditional  attitude  toward  the  most-favored-nation 
clause  in  commercial  treaties ;  the  second,  the  concession 
method,  if  adopted  by  the  United  States,  will  require  a 
general  revision  of  the  tariff,  and  if  all  its  benefits  are 
desired,  will  require  also  the  adoption  of  the  European 
interpretation  of  the  most-favored-nation  clause. 

The  adoption  of  penalty  duties  has  the  limitations  of 
any  method  that  relies  on  threats,  either  open  or  veiled, 
for  the  accomplishment  of  its  end.  But  in  the  hands 
of  skilful  negotiators  such  duties  need  not  be  the  source 
of  international  friction.  Their  use  should  be  specific- 
ally limited  to  removing  discriminations  and  enforcing 
equality  of  treatment.  It  should  never  be  extended  to 
obtaining  special  privileges. 

In  the  Tariff  Act  of  1909  Congress  specifically  aban- 
doned the  special  reciprocity  methods  followed  under  the 
Tariff  Acts  of  1890  and  1897,^  and  adopted  in  Section  2 
a  penalty  provision  the  purpose  of  which  was  to  remove 
discriminations  against  American  interests  abroad.    This 
section  declared  that  the  ''maximum  tariff  of  the  United 
States''  should  consist  of  ''the  dutiable  list  of  Section  1 
of  this  Act,   and  in  addition  thereto   twenty-five  per 
centum  ad  valorem.''     The  President  was  then  author- 
ized to  extend  by  proclamation  "the  minimum  tariff," 
i.  e.,  the  schedule  rates,  to  the  products  of  those  coun- 
tries  that   were   found   not   to   "unduly   discriminate 
against  the  United  States  or  the  products  thereof"  by 
imposing  "terms  or  restrictions,  either  in  the  way  of 
tariff  rates  or  provisions,  trade  or  other  regulations, 
charges,  exactions,  or  in  any  other  manner,  directly  or 

*  Act  of  October  3,  1913. 
»See  Chapter  XIV, 

184 


BARGAINING  TARIFFS 

indirectly,  upon  the  importation  into  or  the  sale  in  such 
foreign  country ' '  of  any  product  of  the  United  States  or 
by  paying  an  export  bounty  or  by  imposing  an  export 
duty  or  prohibition  upon  the  exportation  of  any  article 
to  the  United  States.  The  purpose  expressed  in  the 
section  was  to  obtain  "reciprocal  and  equivalent"  treat- 
ment for  the  products  of  the  United  States. 

Although  sound  in  principle,  experience  disclosed 
some  defects  in  this  bargaining  provision.  These  were 
pointed  out  by  Philander  C.  Knox,  Secretary  of  State, 
in  a  letter  dated  December  13,  1911,  addressed  to  Oscar 
W.  Underwood,  Chairman  of  the  Committee  on  Ways 
and  Means,  and  a  draft  of  a  bill  avoiding  these  defects 
was  submitted  but  never  acted  upon.  The  letter  reads 
in  part  as  follows :® 

In  adjusting  the  tariff  and  trade  relations  of  the  United 
States  with  other  nations  under  terms  of  the  maximum  and 
minimum  tariff  provided  in  Section  2  of  the  tariff  law  of 
August  5th,  1909,  there  were  developed  numerous  instances  of 
tariff  and  administrative  discriminations  against  the  products 
of  the  United  States.  Through  the  negotiations  which  fol- 
lowed the  enactment  of  the  law  most  of  the  flagrant  instances 
of  discrimination  were  removed  or  were  equalized  by  com- 
pensations in  tariff  rates  rendered  by  other  countries  in  ex- 
change for  the  granting  of  tlie  minimum  tariff  of  this  country. 
Some  instances  of  discrimination  could  not  be  removed  by 
negotiations  and  because  of  their  minor  character,  when  con- 
sidered in  relation  of  the  commerce  thus  involved  to  the  entire 
commerce  of  the  United  States  with  the  particular  offending 
country  and  they  were  permitted  to  remain. 

The  remarkable  growth  of  this  country's  export  trade  in  the 
last  two  years  is  of  itself  evidence  of  the  enlarged  markets 
obtained  and  equalized  opportunity  made  possible  by  Section 
2  of  the  tariff  laws. 

Time  has  developed  the  desirability  of  seeking  measures  for 

___^ -  ■  ...1 <r ■' '— '- 

6  New  TorTc  Eerald,  December  15,  1911,  p.  3. 

185 


COMMERCIAL  POLICY 

further  adjustment  in  cases  where  it  is  now  apparent  American 
enterprise  suffers  embarrassment  or  loss  of  trade  or  oppor- 
tunity abroad. 

The  problem  presented  is  to  remove,  so  far  as  practicable, 
those  features  in  foreign  practice  adverse  to  our  export-trade 
development  and  of  serious  import  to  American  enterprises 
directly  affected.  To  solve  this  problem  will  call  for  an 
amendment  of  Section  2,  whereby  will  be  afforded  a  degi-ee  of 
elasticity  in  the  imposition  of  tariff  rates  suited  to  the  offenses 
intended  for  correction.  These  offenses  are  not  many,  but 
.their  importance,  in  justice  to  our  commerce  and  industry, 
must  not  be  overlooked.  In  detail,  there  may  be  mentioned  a 
few  of  the  more  notable  cases,  some  of  which  existed  at  the 
time  of  the  negotiations  under  Section  2  and  others  which  have 
since  developed. 

Belgium.  The  failure  of  the  administration  of  State  rail- 
ways to  permit  the  Continental  Petroleum  Company  of  Ant- 
werp, representing  a  Texas  oil-exporting  concern,  to  bid  for 
supplying  the  State  railways  with  lubricating  oil  of  American 
production.  The  advertisement  for  bids  invariably  specified 
oil  of  Russian  production. 

Germany,     (a)     The    embargoing    through    administrative 
action  of  meats  of  American  origin;    (b)   The  enactment  of 
a  law  in  May,  1910,  regulating  the  output  of  potash  mines  and 
so  taxing  surplus  production  as  to  render  valueless  certain 
advantages  obtained   by   Americans  in   their   contracts   with 
German  mines  and  greatly  reducing  the  tax-free  output  of  the 
two   mines  owned   and   controlled   by   American  capital,   the 
result  being  to  lodge  the  control  of  the  price-making  power  for 
the  potash  consumption  of  the  United  States  in  tiie  hands  of 
a  German  syndicate  of  mine  owners  and  to  remove  the  com- 
petition in  buying  which  would  have  been  possible  under  the 
recognition  of  the  contracts  with  the  independent  mines,  includ- 
ing the  two  American-owned  mines,  not  members  of  the  syndi- 
cate;  (c)  The  export  certificate  practices  which  provided  the 
equivalent  of  bounties  upon  exports,  and  which  are  destructive 
of  American  trade  in  neutral  markets;   (d)   The  existence  of 
rates  of  freight  on  State  Railways  much  greater  east  bound 
than  west  bound  on  the  same  commodities  by  means  of  which 
the  competing  products  of  Austria  and  Russia  have  material 

186 


BARGAINING  TARIFFS 

advantages  in  their  distribution  in  Germany  as  compared  with 
products  of  the  United  States. 

Italy.  The  imposition  of  a  manufacturing  tax  upon  im- 
ported cottonseed  oil  — a  distinctively  American  product — 
whereas  no  such  tax  is  levied  upon  any  other  imported  edible 
oil. 

Austria-Hungary,  (a)  Rates  of  duty  tipon  cotton-seed  oil 
more  than  double  the  rate  applied  to  any  other  edible  oil  with 
which  refined  cotton-seed  oil  comes  in  competition;  (6)  The 
unequal  and  oppressive  measures  authorized  by  the  govern- 
ment and  applied  to  American  investments  in  Austria  with 
respect  to  the  conversion  of  crude  oil  into  refined  oil  and  the 
distribution  of  the  finished  product  as  compared  with  the  treat- 
ment accorded  the  investments  of  Austrian  citizens  similarly 
engaged. 

Bulgaria.  The  requirement  that  cotton-seed  oil  when  im- 
ported shall  be  denatured  and  rendered  unfit  for  human  con- 
sumption. 

Portugal.  The  practical  prohibition  of  imports  of  cotton- 
seed oil. 

It  has  been  observed  that  similar  instances  of  discrimination 
as  between  European  nations  have  found  adjustment  through 
means  at  hand  for  specific  retaliation  where  conciliatory  meas- 
ures have  failed. 

The  Department  feels  that  in  the  suggested  amendment  to 
Section  2  provision  should  be  made  for  "varying  rates  of  tariff 
to  be  added  to  the  minimum  rates  — not  less  than  five  per 
centum  ad  valorem  and  not  exceeding  'twenty  per  centum,  ap- 
plicable by  proclamation  when,  through  the  investigations  made 
at  the  instance  of  the  President,  he  shall  have  become  satis- 
fied that  another  nation's  laws  or  practices  as  relating  either 
to  tariffs  or  commercial  methods  having  governmental  sanction 
are  inimical  to  that  equal  opportunity  in  trade  and  commerce 
to  which  American  enterprise  is  fairly  entitled. 

With  respect  to  the  logical  course  of  the  United  States 
when  foreign  methods  bar  out  national  progress  m  seeking 
equality  of  opportunity  abroad,  the  department  feels  that 
only  by  a  practical  means  of  effectively  offsetting  adverse 
action  of  other  nations  can  injustice  to  our  foreign  commerce 
be  overcome.      It  is  convinced  that  equal  opportunity  for 

187 


I 


COMMERCIAL  POLICY 

enjoying  the  minimum  tariff  of  the  United  States  and  the 
abundance  of  commercial  opportunity  thus  vouchsafed  should 
not  be  cojededto  such  nations  as  deny  to  American  citizens 
rights  and  pnvtleges  granted  to  others.     It  is  realized  that 
the  gravity  of  the  offense  should  be  met  by  a  suitable  remedy- 
one  that  may  be  graduated  to  meet  the  degree  of  embarrass- 
ment sought  to  be  corrected.     This  might  call  for  the  imposi- 
twn  of  additional  duties  of  from  five  to  twenty-five  per  centum 
upon  a  few  commodities,  or  it  might  require  that  all  of  a 
nations  exports  to  the  United  States  should  be  subject  to  rates 
.    of  duty  higher  than  the  existing  minimum.     Instances  minht 
anse  where  to  subject  commodities  now  upon  the  free  list  to 
the  payment  of  duties  would  be  found  to  be  the  only  measure 
of  relief  for  offensive  treatment;  or  the  prohibition  of  imports 
m  aggravated  cases  might  be  necessary. 

The  Tariff  Act  of  October  3,  1913,  provides  that  for 
the  purpose  of  readjusting  the  duties  on  importations 
into  the  United  States  and  for  the  purpose  of  encourag- 
ing the  export  trade  of  this  country  the  President  is 
authorized  and  empowered  to  negotiate  trade  agreements 
with  foreign  nations  "wherein  mutual  concessions  are 
made  looking  toward  freer  trade  relations  and  further 
reciprocal  expansion  of  trade  and  commerce."  Before 
such  agreements  become  effective  their  ratification  by  the 
Congress  of  the  United  States  is  required.' 

The  President,  however,  already  had  power  under  the 
tonstitution  to  negotiate  commercial  treaties,  and  this 
provision  of  the  tariff  Act  merely  modifies  the  method  of 
ratifying  them.  The  section  does  not  lend  itself  to  the 
carrying  out  of  a  consistent  commercial  policy  In  the 
complex  conditions  of  commercial  bargaining  no  con- 
secutive policy  can  be  carried  out  by  negotiating  treaties 
here  and  there  which  in  each  case  have  to  be  submitted 
to  the  Senate  for  ratification  or  to  Congress  for  approval. 
'  Section  4A.  '         '  ' — 


188 


BARGAINING  TARIFFS 

The  many  minor  discriminations  referred  to  by  Mr. 
Knox  can  in  only  a  few  cases  be  reached  by  this  method. 
More  discretion  should  be  placed  in  the  hands  of  the 
Executive,  and  more  flexible  machinery  should  be  de- 
vised for  carrying  out  tariff  bargaining. 

If  it  is  desired  in  this  country  to  supplement  the 
existing  Tariff  Act  with  a  section  providing  for  penalty 
duties,  the  President  might  be  given  power  to  impose, 
by  proclamation,  an  increase  of  duties  not  to  exceed  a 
specified  per  centum  of  the  present  duties  either  on  all 
or  on  certain  enumerated  products  when  imported  from 
any  country  that,  in  his  judgment,  discriminates  against 
the  goods  of  our  manufacturers  or  that  fails  to  give  us 
concessions  in  its  markets  equivalent  to  those  given  other 
nations.     In  the  case  of  products  now  on  the  free  list  a 
maximum  penalty  duty  might  be  provided  for.     Stated 
in  another  way,  the  President  might  be  given  power  to 
suspend,  by  executive  order,  the  privileges  granted  by 
the  general  tariff  schedules  to  any  nation  refusing  us 
equal    treatment    in    its   markets,    and    thereafter   the 
higher  penalty  duties  would  become  effective  against  the 
imports  of  such  discriminating  country.      While  limit- 
ing the  increase  in  duties  that  the  President  might  im- 
pose,  Congress  should  make  the  provision  flexible  in 
order  that  the  penalty  could  be  made  to  fit  the  offense. 
The  President  should  be  permitted  to  apply  any  rate 
below  the  maximum  necessary  to  accomplish  the  purpose 
of  the  law.     Under  this  plan,  the  general  tariff  rates  of 
the  Act  of  October  3,  1913,  now  in  force,  would  consti- 
tute a  sort  of  minimum  tariff ;  the  rates  in  the  bargaining 
section  would  stand  as  a  sort  of  maximum  tariff.     The 
President  would  inquire  into  the  treatment  given  our 
goods  in  foreign  markets.     If  he  found  that  in  a  given 
country  our  goods  were  not  being  discriminated  against 

189 


f 


i\ 


COMMERCIAL  POLICY 

but  that  they  were  receiving  equality  of  treatment,  he 
would  leave  the  present  rates  operative  upon  imports 
from  that  country.  If,  on  the  contrary,  there  were  dis- 
criminations,  and  if  equal  treatment  were  not  given  and 
If  negotiations  did  not  result  in  an  adjustment  which, 
m  the  judgment  of  the  President,  was  equitable,  he 
would  then  declare  by  proclamation  that  the  higher  rates 
were  to  be  put  into  effect  against  the  imports  of  the 
discriminating  country. 

If  the  penalty  duties  do  not  seem  desirable  or  ade- 
quate, European  methods  offer  valuable  precedents  for 
bargaining  by  means  of  making  tariff  concessions.  Two 
systems  are  distinguishable:  the  general  and  conven- 
tional,  and  the  maximum  and  minimum  tariffs 

The  German  tariff  system  offers  the  most  conspicuous 
example  of  the  former.     It  consists  of  a  general  tariff 
lixed  by  the  legislature  and  a  lower  set  of  duties  called 
the     conventional  tariff-  which  are  fixed  by  the  execu- 
tive  branch  of  the  Government  in  bargaining  with  other 
nations  and  which  are  then  embodied  in  treaties^  run- 
ning for  a  definite  term  of  years.    By  thus  binding  her- 
self by  treaty  to  maintain  certain  rates,  Germany  sur- 
renders  for  a  time  her  right  to  change  her  tariff      The 
conventional  rates  are  extended  to  all  nations  that  are 
by  treaty  entitled  to  receive  most-favored-nation  treat- 
ment    It  is  essential  to  the  effective  working  of  a  gen- 
eral and  conventional  tariff  that  as  soon  as  a  concession 
IS  given  by  convention  to  one  nation,  it  shall  auto- 
matically  accrue  to  the  benefit  of  every  other  ^'favored'' 
nation.     For  this  reason  this  system  tends  to  establish 
equality  of  treatment  and  to  prevent  nations  from  dis- 

8  In  the  Germaa  tariff  there  are  a  few  minim^^nrT^t^T^T^;;;^ 
cultural  products  fixed  by  the  legislative  branch  of  the  GovemmfnT 

190 


BARGAINING  TARIFFS 

criminating  against  each  other.  It  has  been  a  big  factor 
in  establishing  harmonious  tariff  relations. 

Our  Federal  Constitution  probably  does  not  permit 
the  adoption  in  this  country  of  a  tariff  system  that  would 
vest  in  the  executive  branch  of  our  Government  the 
power  to  fix  without  limit  the  effective  tariff  rates.  The 
maximum  and  minimum  tariff  system,  with  possibly  some 
modifications,  is,  therefore,  more  adapted  to  the  needs 
of  the  United  States.  This  system,  of  which  the  French 
tariff  offers  the  best  example,  has  a  maximum  tariff 
similar  to  the  general  tariff  referred  to  above,  but  the 
bargaining  rates  are  fixed  by  the  legislature  instead  of 
allowing  the  executive  branch  of  the  Government 
freedom  in  determining  them.  Two  rates  are  agreed 
upon  for  practically  every  article  enumerated  in  the 
Tariff  Act,  and  the  lower  or  minimum  rates  are  used  in 
bargaining  concessions  from  other  countries.  Although 
not  absolutely  necessary  to  the  effective  operation  of  a 
maximum  and  minimum  tariff  system,  the  so-called  un- 
conditional form  of  the  most-favored-nation  clause  is  a 
desirable  supplement  to  a  plan  that  seeks  to  establish,  by 
bargaining,  equality  of  treatment.  It  guarantees  that 
every  nation  that  by  its  conduct  is  entitled  to  most- 
favored-nation  treatment  will  receive  it  automatically. 

The  multiple-tariff  systems  of  Europe  have  some  ad- 
vantages over  penalty  duties  in  establishing  equality  of 
opportunity  in  international  commercial  relations. 
From  a  negotiating  point  of  view,  it  is  more  effective  to 
offer  to  lower  the  rates  of  the  regular  tariff  to  those 
countries  granting  equal  treatment  than  t-©  threaten  to 
penalize  if  discriminations  are  not  removed.  The  offer, 
in  return  for  equal  treatment,  to  reduce  rates  which 
represent  for  the  time  being  the  settled  policy  of  a 
country  makes  a  greater  appeal  in  international  bar- 

191 


COMMERCIAL  POLICY 

gaining  than  a  threat  to  impose  additional  duties  by  way 
of  penalty.  If  in  the  future  it  should  seem  wise  to 
Congress  to  revise  the  tariff  generally,  maximum  and 
minimum  tariff  schedules  might  be  enacted,  the  latter  to 
be  granted  to  those  countries  that  give  to  us  most- 
favored-nation  treatment. 

The  most-favored-nation  clause  in  commercial  treaties 
presents  a  difficult  problem,  particularly  for  the  United 
States.  From  the  very  beginning  of  our  national  exist- 
ence we  have  declined  to  interpret  this  clause  as  the 
nations  of  Europe  now  interpret  it.  In  the  earlier  days 
of  American  diplomacy  our  position  was  perhaps  justi- 
fied, but  in  any  broad  consideration  of  tariff  discrimina- 
tions and  commercial  treaties,  we  must  be  prepared  to 
face  the  necessity  of  abandoning  our  traditional  attitude 
if  it  should  appear  expedient. 

In  almost  all  the  treaties  of  commerce  and  navigation 
which,  before  the  war,  covered  the  world  with  a  veritable 
network,  there  was  found  this  most-favored-nation 
clause.  It  is  essentially  the  basis  of  modern  commer- 
cial treaties.  Its  divergent  forms  and  interpretations 
are  known  as  the  conditional  and  the  unconditional. 
But  each  of  these  appears  in  many  variations  of  form. 

The  conditional  form  and  interpretation  have  been 
adhered  to  chiefly  by  the  United  States.  In  all  but  a 
few  exceptional  instances  we  have  contended  that  the 
clause  did  not  require  us  to  grant  concessions  to  a  third 
nation  unless  the  third  nation  granted  similar  or  equiva- 
lent concessions  in  return.  Following  the  rule  of  the 
Anglo-Saxon  law  of  contracts,  we  have  insisted  upon  a 
consideration.  If  a  concession  was  freely  made,  it  was 
extended  to  other  nations  entitled  to  most-favored- 
nation  treatment,  but  if  it  was  granted  in  return  for  a 

192 


\ 


BARGAINING  TARIFFS 

concession,  it  was  extended  to  the  most-favored-nation 
only  upon  its  granting  an  equivalent  concession.  A 
typical  clause  embodying  the  American  policy  is  that  of 
the  treaty  between  the  United  States  and  Colombia 
(October  3,  1824)  in  which  the  parties 

desiring  to  live  in  peace  and  harmony  with  all  the  other 
nations  of  the  earth,  by  means  of  a  policy  frank  and  equally 
friendly  with  all,  engage  mutually  not  to  grant  any  particular 
favor  to  other  nations,  in  respect  to  commerce  and  navigation, 
which  shall  not  immediately  become  common  to  the  other  party, 
who  shall  enjoy  the  same  freely  if  the  concession  was  freely 
made,  or  on  allowing  the  same  compensation  if  the  concession 
was  conditional. 

Both  the  Federal  courts  and  the  Department  of  State 
have  in  the  past  supported  the  conditional  interpreta- 
tion of  the  most-favored-nation  clause  whether  or  not 
the  clause  contained  specific  language  to  that  effect.  In 
the  case  of  Bartram  vs,  Robertson^  the  plaintiff  claimed 
that  sugar  from  St.  Croix  should  be  admitted  under  the 
treaty  with  Denmark  because  like  articles  the  product 
and  manufacture  of  the  Hawaiian  Islands  were  under 
treaty  and  the  Act  of  Congress  of  August  15,  1876  ad- 
mitted free  of  duty.  The  most-favored-nation  clause 
in  the  Danish  treaty  provided  that  the  parties  **  engage 
mutually,  not  to  grant  any  particular  favor  to  other 
nations  in  respect  of  commerce  and  navigation  which 
shall  not  immediately  become  common  to  the  other  party, 
who  shall  enjoy  the  same  freely,  if  the  concession  were 
freely  made,  or  upon  allowing  the  same  compensation, 
if  the  concession  were  conditional."  The  Supreme 
Court  in  its  opinion  said:  *'Our  conclusion  is,  that  the 
treaty  with  Denmark  does  not  bind  the  United  States 
to  extend  to  that  country,  without  compensation,  privi- 

•  122  U.S.  116  (1886). 

193 


COMMERCIAL  POLICY 


leges  which  they  have  conceded  to  the  Hawaiian  Islands 
in  exchange  for  valuable  concessions.  On  the  contrary, 
the  treaty  provides  that  like  compensation  shall  be  given 
for  such  special  favors. ' ' 

The  question  came  up  again  in  a  somewhat  different 
form  in  the  case  of  Whitney  vs.  Roberson/°  The  treaty 
involved  was  that  with  the  Dominican  Republic  from 
which  the  clause  about  * '  free  concessions  and  concessions 
upon  compensation"  was  omitted.  Nevertheless,  the 
Supreme  Court  upheld  the  American  interpretation  of 
the  most-favored-nation  clause.     It  said : 

We  do  not  think  that  the  absence  of  this  provision  changes 
the  obUgation  of  the  United  States.  The  9th  article  of  the 
treaty  with  tliat  Republic  (Dominican  RepubUc),  in  the  clause 
quoted,  is  substantially  like  the  4th  article  in  the  treaty 
with  the  King  of  Denmark.  And  as  we  said  of  the  latter,  we 
may  say  of  the  former,  that  it  is  a  pledge  of  the  contracting 
parties  that  there  shall  be  no  discriminating  legislation  against 
the  importation  of  articles  which  are  the  growth,  produce,  or 
manufacture  of  their  respective  countries,  in  favor  of  articles 
of  like  character,  imported  from  any  other  country.  It  has 
no  greater  extent.  It  was  never  designed  to  prevent  special 
concessions,  upon  sufficient  considerations,  touching  the  im- 
portation of  specific  articles  into  the  country  of  the  other. 
It  would  require  the  clearest  language  to  justify  a  conclusion 
that  our  Government  intended  to  preclude  itself  from  such 
engagements  with  other  countries,  which  might  in  the  future 
be  of  the  highest  importance  to  its  interests. 

Not  only  our  courts  but  our  statesmen  have  argued  for 
the  conditional  form  of  the  clause.  In  October,  1787, 
John  Jay,  Secretary  for  the  Department  of  Foreign 
Affairs,  in  his  report  to  Congress,  said  in  discussing  the 
most-favoi*ed-nation  clause  :^^ 


10  124  V.  S.  190  (1887). 

11  Crandall,  The  American  Construction  of  the  Most-Favored' 
Nation  Clause,  p.  708. 

194 


BARGAINING  TARIFFS 

It  is  observable  that  this  article  takes  no  notice  of  cases 
where  compensation  is  granted  for  privdeges.      Reason  and 
equity,  however,  in  the  opinion  of  your  Secretary,  will  supply 
this   deficiency     .     .     .     Where  a  privilege  is  gratuitously 
granted,  the  nation  to  whom  it  is  granted  becomes  in  respect 
to  that  prmlege  a  favored  nation     ...     but  where  the 
privdege  is  not  gratuitous,  but  rests  on  compact,  in  such  case 
the  favor,  if  any  there  be,  does  not  consist  in  the  privilege 
yielded  but  in  the  consent  to  make  the  contract  by  which  it 
IS  yielded.    ...    The  favor  therefore  of  being  admitted  to 
make  a  similar  bargain  is  all  that  in  such  cases  can  reasonably 
be  demanded  under  the  article.    Besides,  it  would  certainly  be 
inconsistent  with  the  most  obvious  principles  of  justice  and 
lair  construction,  that  because  France  purchases,  at  a  great 
price,  a  privdege  of  the  United  States,  that  therefore  the  Dutch 
shal    immediately  insist,  not  on  having  the  like  privileges  at 
the  like  price,  but  without  any  price  at  all. 

John  Sherman,  Secretary  of  State  in  1898,  in  a  long 
memorandum  to  Mr.  Buchanan,  American  Minister  to 
the  Argentine  Republic,  said  in  speaking  of  the  clause :'' 

It  is  clearly  evident  that  the  object  sought  in  all  the  varying 
forms  of  expression  is  equality  of  international  treatment, 
protection  against  the  willful  preference  of  the  commercial 
interests  of  one  nation  over  another.  But  the  allowance  of 
the  same  privileges  and  the  same  sacrifice  of  revenue  duties, 
to  a  nation  which  makes  no  compensation,  that  had  been  con- 
ceded to  another  nation  for  an  adequate  compensation,  instead 
of  maintaining  destroys  that  equality  of  market  privile-cs 
which  the  "most-favored-nation"  clause  was  intended  ^o 
secure.  It  concedes  for  nothing  to  one  friendly  nation  what 
the  other  gets  only  for  a  price.  It  would  thus  become  the 
source  of  international  inequality  and  provoke  international 
hostdity. 

The  most-favored-nation  clause,  therefore,  as  in- 
terpreted by  our  courts  and  public  men  is  not  an  instru- 
ment  of  acquisition,  not  a  means  of  generalizing  con- 

12  Moore,  Digest  of  International  Law,  vol.  v,  p   278  ~ 

195 


COMMERCIAL  POLICY 

cessions,  but  a  preventive  of  discrimination  and  a  means 
of  promising  to  other  countries  the  opportunity  to 
negotiate  for  concessions  made  to  another  state.  From 
this  position  it  was  logical  for  us  to  use  the  clause  in 
support  of  special  reciprocity  agreements. 

The  unconditional  form  and  interpretation  of  the 
most-favored-nation  clause  has  the  purpose  of  general- 
izing concessions.  It  operates  to  extend  automatically 
without  negotiation  to  third  nations  those  concessions 
agreed  upon  between  any  two.  It  assures  to  nations 
relying  upon  it  that  at  no  subsequent  date  will  they  be 
placed  in  an  unfavorable  position  by  negotiations  to 
which  they  are  not  a  party.  It  is  a  powerful  factor 
working  against  special  discriminations  in  favor  of 
equality  of  treatment. 

A  typical  clause  of  this  character  is  the  following  one 
from  the  treaty  between  Great  Britain  and  Japan 
(April  3,  1911) : 

The  high  contracting  parties  agree  that,  in  all  that  concerns 
commerce,  navigation,  and  industry,  any  favor,  privilege,  or 
immunity  which  either  high  contracting  party  has  actually 
granted,  or  may  hereafter  grant,  to  the  ships,  subjects,  or  citi- 
zens of  any  other  State,  shall  be  extended  immediately  and 
unconditionally  to  the  ships  or  subjects  of  the  other  high  con- 
tractmg  party,  it  being  their  intention  that  the  commerce, 
navigation,  and  industry  of  each  country  shall  be  placed  in  all 
respects  on  the  footing  of  the  most-favored  nation. 

The  British  Government  in  recent  years  has  stood  for 
the  unconditional  interpretation,  which  was  stated  in  its 
extreme  form  by  the  Earl  of  Granville  in  1885.  He 
said  :^^ 

The  interpretation  of  the  most-favored-nation  clause  in- 
volved   in   the   United    States  proposals   is,  that   concessions 


i&Ilid.,  p.  270. 


196 


BARGAINING  TARIFFS 

granted  conditionally  and  for  a  consideration  cannot  be  claimed 
under  it.  From  this  interpretation  Her  Majesty^s  Govern- 
ment entirely  and  emphatically  dissent.  The  most-favored- 
nation  clause  has  now  become  the  most  valuable  part  of  the 
system  of  commercial  treaties,  and  exists  between  nearly  all 
the  nations  of  the  earth.  It  leads  more  than  any  other  stipu- 
lation to  simplicity  of  tariffs  and  to  ever-increased  freedom 
of  trade;  .  .  .  Its  effect  has  been,  with  few  exceptions,  that 
any  given  article  is  taxed  in  each  country  at  practically  one 
rate  only.  .  .  .  But  should  the  system  contemplated  by 
the  United  States  be  widely  adopted,  there  will  be  a  return 
to  the  old  and  exceedingly  inconvenient  system  under  which 
the  same  article  in  the  same  country  would  pay  different 
duties  varying  according  to  its  country  of  origin,  nationality  of 
the  importing  ship,  and,  perhaps  at  some  future  time,  varying 
also  with  the  nationality  of  the  importer  himself. 

It  is,  moreover,  obvious  that  the  interpretation  now  put 
forward  (exactly  that  which  had  always  been  applied  by  the 
United  States)  would  nullify  the  most-favored-nation  clause; 
for  any  country,  say,  France,  though  bound  by  the  most- 
favored-nation  clause  in  her  treaty  with  Belgium,  might  make 
treaties  with  any  other  country  involving  reductions  of  duty  on 
both  sides,  and,  by  the  mere  insertion  of  a  statement  that  these 
reductions  were  granted  reciprocally  and  for  a  consideration, 
might  yet  refuse  to  grant  them  to  Belgium  unless  the  latter 
granted  what  France  might  consider  an  equivalent. 

The  object  of  the  European  interpretation  of  the  most- 
favored-nation  clause  in  commercial  treaties  is  to  gen- 
eralize concessions,  to  guarantee  that  no  country  will  be 
placed  on  a  less  favorable  basis  than  another.  It  holds 
that  concessions  granted  by  treaty  to  one  country  are 
immediately  and  unconditionally  to  be  extended  to  every 
other  country  entitled  to  most-favored-nation  treatment. 

During  the  war  discussions  in  Europe  cast  some  doubt 
on  the  value  of  the  unconditional  form  and  interpreta- 
tion of  the  most-favored-nation  clause.  In  the  minds  of 
the  French  this  provision  of  the  Treaty  of  Frankfort  of 

197 


COMMERCIAL  POLICY 


1871  rankled.  Plans  of  discrimination  were  frequently 
formulated.  The  most  famous  was  that  resolution  of  the 
Pans  Economic  Conference  in  June,  1916,  providing  that 
most-favored-nation  treatment  should  not  be  granted  to 
* 'enemy  powers'*  during  a  period  following  the  Peace 
Conference  *'to  be  fixed  by  mutual  agreement"  among 
the  Allies.^* 

The  two  bargaining  methods  which  have  been  dis- 
cussed in  this  chapter  both  have  the  same  object,  the 
establishment  of  equality  of  treatment  in  international 
commercial  relations.      One  may  be  used  in  one  set  of 
circumstances,  the  other  in  another.     Without  doubt  the 
United  States  will  need  a  more  flexible  tariff  in  the 
future  than  it  has  had  in  the  past.      The  concessional 
method,  if  adopted  in  the  United  States,  would  require  a 
general   revision   of   the   tariff.      It  involves  virtually 
something  in  the  nature  of  a  maximum  and  minimum 
tariff.     The  rates  of  the  minimum  tariff  would  be  those 
dictated  by  domestic  policy  and  would  be  extended  to 
all  countries  granting  to  the  United  States  equality  of 
treatment.      In  practice  the  minimum  rates  of  a  con- 
cessional tariff  would  be  made  in  accordance  with  the 
revenue  and  industrial  needs  of  the  country  and  except 
in  rare  instances  would  be  the  effective  tariff  rates.     The 
higher  or  maximum  rates  would,  like  penalty  duties,  be 
applied  to  those  countries  refusing  most-favored-nation 
treatment.     More  important  than  the  particular  method 
of  bargaining  adopted,  whether  it  be  penalty  duties  or 
the  concessional  method,  is  the  spirit  which  animates  the 
legislation. 

The  Government  of  the  United  States  has,  since  its 

14  See  Appendix  II.     See  also  British  Report  of  the  Committee 
on  Commercial  and  Industrial  Policy  after  the  War   rCd    9035^ 
p.  49  et  seq.  ^      '  '* 

198 


BARGAINING  TARIFFS 

establishment,  contended  for  the  conditional  form  of  the 
most-favored-nation  clause^  and  has  argued  that  in  doing 
so  its  intent  was  to  offer  and  to  secure  equality  of  treat- 
ment.     The  actual  result  in  practice  has  been  special 
agreements  establishing  inequality.     As  it  has  worked 
out,  the  conditional  clause  has  facilitated  the  negotiation 
of  special  agreements.     The  unconditional  clause,  on  the 
other  hand,  gives  and  accepts  guarantees  that  the  nations 
concerned  will  not  discriminate  against  each  other.    Here 
again  much  depends  upon  the  spirit  in  which  nations  use 
the  most-favored-nation  clause.      Unconditional  most- 
favored-nation  treatment,  involving  the  generalization  of 
each  special  favor,  need  by  no  means  result  in  equality  of 
treatment,    and    conversely,    conditional    most-favored- 
nation  treatment,  with  its  special  reciprocity  agreements, 
need  by  no  means  necessarily  result  in  discrimination. 
Where,  however,  the  guiding  principle  of  a  Government 
is  equality  of  treatment,  the  presumption  is  in  favor  of 
the  unconditional  clause.     It  is  a  highly  desirable  sup- 
plement to  the  concessional  method  of  bargaining,  and  in 
general  tends  to  remove  discriminations  and  to  establish 
equality.     It  is  a  matter  of  serious  debate  whether  or  not 
the  American  interpretation  of  the  most-favored-nation 
clause  is  adapted  to  the  ideals  of  international  politics 
and  trade  for  which  this  country  is  now  contending. 
The  unconditional  clause,  on  the  other  hand,  has  for  its 
specific  purpose  equalization  and  generalizing  of  favors. 
In  carrying  out  the  principle  of  equality  of  treatment,  it 
is  very  likely  that  the  United  States  in  the  future  will 
find  the  unconditional  form  and  interpretation  of  the 
most-favored-nation  clause  most  satisfactory.     Any  re- 
version by  the  European  countries  to  the  conditional 
form  should  also  be  deprecated.     As  long  as  the  United 
States,  or  any  other  country,  insists  upon  the  conditional 

199 


COMMERCIAL  POLICY 

form  of  the  clause,  we  retain  a  ground  for  friction  be- 
tween nations,  and  the  world  is  deprived  of  one  of  the 
most  effective  means  known  to  modern  international 
commerce  for  establishino^  equality  of  treatment  and  in- 
ternational  fair  dealing. 


CHAPTER  XI 

NATIONAL  CONTROL  OF  AMERICAN   COMMERCIAL  ACTIVITIES 

ABROAD 

Undemocratic  tendencies  in  national  commercial  policy  —  Types 
o±  American  commercial  activity  abroad  —  Export  of  food 
and  raw  materials  —  Export  of  manufactured  goods  — 
American  factories  abroad  —  American  capital  to  develop 
foreign  resources  —  Loans  of  American  capitalists  to  foreign 
governments -Need  for  regulation  -  Types  of  complications 
which  may  arise  —  Neither  imperialism  nor  laisse^  faire  is  a 
proper  policy  —  Precedents  for  regulation  and  control  —  Need 
for  more  comprehensive  control  that  will  remove  causes  of 
international  friction  —  Limitations  of  national  regulation  — 
5  irst  step  toward  a  democratic  world  league  is  democratic  life 
in  individual  nations. 

On  a  democratic  nation,  such  as  America,  rests  the 
obligation  to  provide  security  and  equality  of  treatment 
for  its  economic  interests  at  home  and  abroad  and  to 
assist  in  developing  its  national  resources.     It  may,  if  its 
needs  demand,  enact  a  tariff  that  equalizes  conditions  of 
competition  against  foreign  producers,  establish  regula- 
tions that  prevent  dumping,  promote  foreign  enterprises 
by  its  citizens,  and  compel  equality  of  treatment  for  them 
abroad.     But  thus  far  there  is  little  in  the  commercial 
policy  of  democracy  that  distinguishes  it  from  an  im- 
perialistic nation.    It  may  be  asked :    ''Do  not  even  the 
publicans  do  the  same?"     They  do,  but  they  do  other 
things  which  are  distinctly  undemocratic.     Nations  that 
pride  themselves  on  the  democracy  of  their  political  in- 
stitutions do  not  always  pursue  a  democratic  commercial 
policy. 

The    extension    of    American    commercial    activities 
abroad  is  not  objectionable.      Prosperity  and  goodwill 

201 


COMMERCIAL  POLICY 


COMMERCIAL  ACTIVITIES  ABROAD 


are,  as  a  rule,  promoted  by  the  general  exchange  of  goods 
and  capital  among  nations.     But  quietly  and  impercepti- 
bly complications  between  American  commercial  inter- 
ests and  other  countries  may  develop  which  may  embroil 
the  United  States  in  diplomatic  and  perhaps  military 
difficulties.      The  complexities  of  international  finance 
and  trade  are  little  understood  by  the  American  people, 
largely  because  their  domestic  problems  have  been  of 
absorbing  interest.      Occupied  with  the  conquest  of  a 
continent  and  separated  from  Europe  by  the  ocean,  they 
have  held  to  their  traditional  policy  of  isolation.    But 
much  water  has  run  under  the  bridge  since  August,  1914. 
Our  thoughts  have  been  swept  from  national  into  inter- 
national currents.      In  former  years  we  as  a  nation 
moved  too  sluggishly  in  the  great  stream  of  foreign 
affairs.     We  regarded  diplomacy  as  beyond  the  shores 
of  our  everyday  life.     It  was  for  experts  alone.      Our 
commercial  policy  was  at  times  haphazard  and  experi- 
mental.    We  seldom  thought  it  through  in  the  light  of 
world  politics.      But  now,  when  the  world  is  full  of 
change,   it   is  natural   to   consider  the   desirability   of 
modifying  our  traditional  position.     We  have  come  to 
see  that  our  foreign  policy  may  be  of  even  greater  im- 
portance than  our  domestic  policy,  for  in  defense  of  the 
former  we  have  been  and  may  again  be  called  upon  to 
give  thousands  of  lives  and  billions  of  dollars.     Under 
the  dramatizing  influence  of  war  we  have  come  to  realize 
the  need  of  publicity,  education,  and  general  interest  in 
foreign  affairs. 

It  has  become  increasingly  clear  that  one  of  the  major 
causes  of  the  war  was  the  unregulated  clash  of  the  com- 
mercial interests  of  nations.  Unfair  practices,  tariff 
preferences,  transportation  discriminations,  colonial  ex- 
clusiveness,  exploitation  of  native  populations,  struggles 

202 


for  concessions  and  investments  played  a  large  part  in 
stimulating  the  building  of  armaments,  and  when  di- 
plomacy failed,  in  causing  the  appeal  to  arms.  In  these 
respects  the  guilt  is  not  Germany's  alone.  The  Allies 
have  a  generous  share  of  the  world's  imperialism  on  their 
side.  Commercial  aggressiveness,  colonial  ambition, 
concession  seeking,  and  the  use  of  political  power  to 
advance  national  aims,  which  we  condemn  in  Germany, 
do  not  suddenly  become  commendable  when  practiced  by 
the  Allies.  German  methods  in  the  Turkish  Empire  and 
Shantung  have  their  parallels  in  the  activities  of  the 
French  in  Morocco,  the  British  in  Egypt  and  Persia,  and 
the  Japanese  in  Korea  and  Manchuria.^ 

That  many  of  these  economic  questions  are  primarily 
for  international  consideration  is  no  excuse  for  indi- 
vidual nations  not  contributing  to  their  solution  by 
their  own  action.  A  democratic  League  of  Nations  can- 
not result  from  a  grouping  of  imperialistic  nations. 
America,  championing  the  cause  of  world  governmeuc, 
should  be  particularly  sure  that  her  foreign  commercial 
activities  are  conducted  in  a  fair,  open,  humane  way. 
As  in  domestic  trade,  the  public  interest  requires  some 
degree  of  regulation  and  control  of  the  business  ventures 
of  American  citizens  abroad. 

American  commercial  activities  in  foreign  countries, 
which  before  the  war  were  extensive,  have  during  the 
war  expanded  and  become  more  varied.  Their  nature 
only,  with  a  few  typical  illustrations,  need  be  considered 
here.  They  may  be  conveniently  classified  under  five 
heads. 

(1)  The  export  of  food  and  raw  materials. —  America 
has  always  been  a  great  exporter  of  foodstuffs.      But 


See  Chapter  XVII. 


203 


COMMERCIAL  POLICY 


COMMERCIAL  ACTIVITIES  ABROAD 


before  the  war  the  increasing  domestic  demand  steadily 
reduced  the  surplus  of  products  of  the  farm  and  range 
available  for  export.  During  the  war  period,  it  is  true, 
the  export  of  foodstuffs  broke  all  records,  but  it  is  proba- 
ble that  the  pre-war  tendency  will  reappear.  Manu- 
factured food  products,  such  as  canned  goods,  condensed 
milk,  dried  fruit,  vegetable  oils,  prepared  cocoa,  and 
others,  are  becoming  increasingly  important  in  our  for- 
eign commerce.  Certain  raw  materials  are  also  large 
factors  in  our  foreign  trade.  In  supplying  other  coun- 
tries with,  such  essentials  as  lumber,  sulphur,  copper, 
and  cotton  we  have  played  an  important,  and  in  some 
cases  a  dominant  part.  Our  position  in  the  cotton  and 
sulphur  trades  has  already  been  referred  to.  We  export 
annually  about  three  billion  feet  of  lumber.  In  1917  we 
exported  copper  valued  at  $322,000,000.  In  that  year 
60.5  per  cent,  of  the  world's  output  of  copper  was  pro- 
duced in  the  United  States. 

(2)  The  export  of  manufactured  articles. —  For  years 
the  United  States  has  exported  many  manufactured  com- 
modities peculiarly  of  American  invention  and  design. 
They  include  shoe  machinery,  agricultural  machinery, 
printing  presses,  sanitary  plumbing,  cash  registers,  add- 
ing machines,  typewriters,  and  sewing  machines.  The 
growing  export  trade  in  more  competitive  products,  such 
as  cotton  and  silk  textiles,  steel,  machine  tools,  rubber 
goods,  paper,  locomotives,  motor  trucks,  electrical  goods, 
and  inexpensive  automobiles,  has  been  greatly  stimulated 
by  war  conditions.  In  some  lines  American  export  in- 
terests have  built  up  efficient  and  extensive  selling  organ- 
izations with  representatives  in  many  foreign  countries ; 
in  others  they  have  used  the  selling  facilities  of  commis- 
sion and  mercantile  houses  doing  business  abroad,  or 
they  have  sold  direct  to  the  foreign  consumer. 

204 


(3)  The  establishment  of  factories  abroad  with  Ameri- 
can capital. —  There  has  been  a  tendency  in  recent  years 
for  the  American  exporting  industries  to  establish 
branch  factories  abroad  with  American  capital.  Many 
motives  have  been  back  of  this  movement.  The  patent 
laws  of  some  countries.  Great  Britain  and  Canada  for 
example,  require  that  in  order  to  receive  the  protection 
of  the  Government  against  infringement  the  product 
patented  must  be  manufactured  to  some  extent  in  the 
country  where  the  patent  is  obtained.  Hence,  many 
American  producers  of  articles  such  as  cash  registers, 
adding  machines,  shoe  machinery,  and  electrical  appa- 
ratus have  found  it  necessary  to  establish  factories 
abroad.  In  other  cases  high  tariff  duties,  which  hin- 
dered the  export  of  goods,  have  stimulated  the  export  of 
capital,  and  factories  to  supply  the  foreign  market  have 
been  established  inside  the  tariff  barrier.  American 
capital  in  Canada,  for  example,  is  in  part  due  to  this 
influence.  A  third  case  is  where  American  capital  has 
established  factories  in  foreign  countries  in  order  to  be 
near  a  large,  comparatively  inexpensive  source  of  raw 
material.  With  the  rising  cost  of  cattle  in  the  United 
States,  American  packers  have  erected  large  plants  in 
Australasia,  Uruguay,  Brazil,  Paraguay,  and  Argentina 
from  which  they  ship  both  fresh  and  canned  meats.  The 
establishment  of  American  paper  mills  in  Canada  was 
stimulated  by  the  desire  to  be  near  the  valuable  supply 
of  spruce  in  the  Canadian  woods  as  well  as  by  the  pro- 
vincial restrictions  on  the  export  pulpwood  cut  on 
Crown  lands.  Still  another  motive  for  establishing 
factories  abroad  is  the  desire  to  be  near  a  cheap  labor 
supply  in  order  to  reduce  the  cost  of  production  of 
manufactured  articles.  This  was  no  doubt  one  of  the 
factors  which  influenced  American  capitalists  to  erect 

205 


COMMERCIAL  POLICY 

in  China  and  Japan  factories  for  the  production  of  tex- 
tiles and  electrical  goods. 

(4)  The  employment  of  American  capital  to  develop 
foreign  natural  resources  or  to  finance  crops.—  Ameri- 
can capital  is  heavily  invested  in  Mexico.     That  country 
has  been  called  the  ' '  Land  of  Concessions. ' '     According 
to  an  estimate  made  a  few  years  ago  by  John  Barrett" 
Director  of  the  Pan-American  Union,  more  than  two- 
thirds  of  all  the  capital  invested  in  Mexico  was  foreign, 
and  of  this  foreign  capital  two-thirds  was  American! 
American  investment  is  largest  in  mines.     The  Meximn 
I  ear  Book  estimates  that  of  the  $647,000,000  invested  in 
Mexican  mines,  $500,000,000  is  American.      Americans 
have  large  investments  in  oil  resources  and  in  other 
enterprises  in  Mexico.      They  are  interested  in  mining 
ventures  in  Bolivia  and  Chile.      They  have  invested  to 
some  extent  m  the  railroads  and  public  utilities  of  Latin 
America.     In  the  development  and  financing  of  tropical 
crops   American   interests   have   played   a   large   part. 
They  were  pioneers  in  the  tropical  fruit  business  in  the 
Caribbean  and  have  acquired  control  of  large  planta- 
tions,  railways  and  ports.     The  United  Fruit  Company 
operates  a  fleet  of  passenger,  freight,  and  refrigerator 
vessels. 

A  characteristic  feature  of  the  production  of  a  num- 
ber of  the  most  important  agricultural  products  of 
Latin  America  is  that  they  involve  a  considerable  capital 
outlay  and  a  long  period  of  waiting  for  returns.  It 
takes,  for  example,  from  seven  to  10  years  for  a  cacao 
plantation  to  attain  full  bearing.  This  initial  expendi- 
ture, and  the  subsequent  expenses  of  harvesting,  export 
taxes,  and  sacks,  require  considerable  financing,  and 
these  countries  are,  of  course,  ^'capital-poor.'*  More- 
over, the  land  cannot  be  devoted  to  different  crops  from 

206 


7 


COMMERCIAL  ACTIVITIES  ABROAD 

» 

^^ar  to  year  according  to  market  conditions;  the  trees 
exist  and  continue  to  bear  regardless  of  markets  or 
prices.  These  conditions  eause  recurrent  periods  of 
over-production  and  low  prices,  and  periodically 
threaten  the  financial  stability  of  such  countries  as 
Ecuador,  whose  most  important  product  is  cacao.  The 
channels  of  trade  of  these  products  are  to  a  considerable 
extent  determined  by  the  sources  from  which  financial 
support  emanates.  In  1918  the  Mercantile  Bank  of 
the  Americas  undertook  the  financing  of  the  Ecuador 
cacao  crop,  the  chief  commercial  asset  of  that  country. 
Ecuador  cacao,  especially  the  ''arriba"  variety,  has  a 
distinctive  flavor  and  is  in  demand  for  flavoring  blended 
cocoa  and  chocolate  products.  A  manufacturer  accus- 
tomed to  use  arriba  cacao  to  produce  a  distinctive  flavor 
will,  of  course,  be  willing  to  pay  a  higher  price  for  this 
product  to  continue  his  blend.  Ecuador  began  to 
*' valorize"  its  crop  in  1911,  following  a  period  of  over- 
production and  low  prices,  the  original  plan  being  to 
store  the  product  when  prices  were  low  and  to  unload 
at  more  favorable  periods.  Hamburg  interests  financed 
this  project,  but  the  connection  proved  unfortunate  for 
the  Ecuadorians.  The  war  terminated  the  German  con- 
nection, and  eventually  American  capitalists  undertook 
this  project  through  the  agency  of  the  Mercantile  Bank.^ 
The  American  rubber  companies  have  secured  their 
supply  of  raw  materials  by  investing  in  rubber  planta- 
tions in  the  East  Indies.  The  United  States  Rubber 
Company  has  approximately  ten  million  dollars  in 
rubber  plantations  on  the  east  coast  of  Sumatra.  The 
Goodyear  Tire  and  Rubber  Company  and  the  Inter- 


im' 


n 


2  For  a  survey  of  investments  in  Latin  America  see  Department 
of  Commerce,  "Investments  in  Latin-America,**  Special  Agent 
Series,  No.  169  (1918). 

207 


/ 


COMMERCIAL  POLICY 

continental  Rubber  Company  have  also  invested  ifl 
rubber  plantations  in  the  East  Indies.  The  Mexicin 
Crude  Rubber  Company  has  its  rubber  plantations  in  the 
Federated  Malay  States. 

(5)   The  loan  of  American  private  capital  to  foreign 
Governments.— In  the  Caribbean  American  capitalists 
have  not  only  invested  enormous  sums  in  private  enter- 
prises and  concessions,  but  they  have  also  assisted  in 
financing  Governments.      Perhaps  a  more  interesting 
example  of  this  form  of  American  activity  abroad  is  our 
share  in  financing  China.     During  the  Taft  Administra- 
tion the  President  and  Philander  C.  Knox,  his  Secretary 
of  State,  sought  to  make  the  influence  of  the  United 
States  in  behalf  of  the  ''open  door"  more  effective  by 
having  American  capital  share  in  the  development  of 
China.      The  United  States  was  a  party  with  Great 
Britain,  France,  and  Germany  in  the  Four-Power  Loan 
for  the  Hukwang  railways    (May,   1911).      American 
capitalists  also  shared  in  the  Currency  Loan  Agreement 
with  the  Chinese  Government.     In  1913  American  finan- 
cial interests  arranged  to  participate  in  the  Six-Power 
Loan  to  China,  but  because  some  of  the  powers  were 
actuated  by  ulterior  motives  which  seemed  inimical  to 
China's  sovereignty.  President  Wilson  soon  after  his 
inauguration  withdrew  the  support  of  the  American 
Government  and  American  capitalists  withdrew  from 
the  group.^ 

The  cases  of  American  investments  abroad  cited  as 
illustration  under  the  above  classifications  of  commercial 
activities,  it  should  be  remembered,  in  no  sense  exhaust 
the  list.    A  compilation  of  American  investments  abroaa 


/ 


/-.ni^i?^^®^.?*  Horabeck,  Contemporary  PoUtic$  in  the  Far  Eatt 
(1916),  p.  391  et  acq. 

208 


\ 


COMIVIERCIAL  ACTIVITIES  ABROAD 

is  not  necessary  for  the  purpose  of  this  discussion.  It 
is  sufficient  to  note  their  nature  and  to  know  that  they 
are  substantial,  particularly  in  the  western  hemisphere. 
Taking  the  world  over,  however,  they  are  not  so  large 
as  the  foreign  investments  of  Great  Britain,  France,  or 
Germany.* 

American  commercial  activities  abroad  are  national 
assets  which  should  be  encouraged.  It  is  distinctly 
valuable  both  to  the  United  States  and  foreign  peoples 
to  have  our  commercial  interests  export  their  goods  and 
capital.  But  here,  as  in  domestic  trade  and  investment, 
some  degree  of  regulation  and  control  is  desirable  from 
a  public  standpoint.  American  commercial  activities 
should  be  regulated  and  controlled  in  such  manner  as 
will  prevent  them  from  involving  this  country  in  strife 
with  other  peoples.  From  the  claims  of  some  business 
men  one  suspects  that  they  hold  to  an  ethical  code  in 
foreign  business  w^hich  differs  from  that  to  which  they 
submit  at  home,  and  that  when  they  leave  the  shores  of 
their  country,  they  feel  justified  in  engaging  in  any 
practice  that  will  accomplish  their  end.  Although  they 
object  to  Government  regulation,  they  harbor  the  con- 
viction that  if  they  get  into  trouble  with  a  foreign  Gov- 
ernment, the  diplomatic  machinery  of  the  United  States 
will  save  them. 

Several  cases  where  the  possibility  of  international 
complications  makes  regulation  desirable  may  be  indi- 
cated. In  the  exportation  of  our  natural  resources  it 
would  not  be  just  in  every  case  to  charge  all  that  the 
market  would  bear.  Those  parts  of  the  world  today 
that  need  raw  materials  most  for  reconstruction  are  least 
able  to  pay.  Belgium  and  France  have  given  not  only 
the  lives  of  their  citizens,  but  their  natural  resources  in 

•  See  Chapter  XYD.  — — 

209 


/ 


COMMERCIAL  POLICY 

the  cause  of  democracy.  Mines  have  been  depleted 
forests  cut  down,  productive  land  destroyed.  It  would 
be  unjust  to  permit  organized  business  interests  of  the 
United  States,  which  have  suffered  comparatively  little 
in  the  war,  to  use  their  economic  advantage  to  exact 
high  prices  from  impoverished  peoples. 

Unfair  competition  and  discriminations  are  as  ob- 
jectionable in  export  as  in  domestic  trade,  but  are  in- 
finitely  more  difficult  to  handle.  To  forbid  our  ex- 
porters to  do  things  which  competitors  do  with  impunity 
IS  manifestly  unfair.  As  will  be  suggested  later,  this  is 
an  international  question,  but  even  regulation  by  the 
United  States  Government  would  afford  a  basis  for 
negotiation  which  might  ultimately  lead  to  adjustment 
by  treaty.^ 

Factories  established  abroad  may  lead  to  undesirable 
complications,  although  they  are  usually  in  countries 
where  municipal  law  has  reached  such  a  stage  of  de- 
velopment  that  local  regulation  is  sufficient.  But  if 
these  regulations  seem  harsh  to  American  interests,  they 
may  appeal  to  the  home  Government  to  interfere  in  their 
behalf.  The  threatened  monopolistic  control  of  the 
world's  meat  supply  by  the  American  packing  concerns 
has  disturbed  the  peoples  of  Uruguay,  Argentina,  and 
Australia.  Control  of  prices  and  the  suppression  of 
competition  have  been  charged.® 

.   "The  Y''.^*^'^  ^^^*^^  ^^3  ^^t^^cd  into  conventions  for  the  vto'. 
tection  of  industrial  property  with  some  19  countries       See  De- 

a915)Tp.  ll,'''^'-'''''    ^^'i   Laws   and    Unfair    CompTtiUon 
.       The  Federal  Trade  Commission's  *' Report  on  the  Meat  Pack 
ToLmrty To  li-t\'h?'"^  \^'  ''}  ''     ' '  ^^' ^  *^^^  com\Sorrn'd 

results,  is  sho..  by  a  statem'en^Sfin  m7'by^hfprS^o^ 

210 


\ 


/ 


COMMERCIAL  ACTIVITIES  ABROAD 

Other  complications  arise  from  the  investment  of 
capital  in  the  development  of  the  natural  resources  of 
foreign  countries  for  the  reason  that  these  operations 
frequently  take  place  among  peoples  with  weak  Govern- 
ments. It  is  in  such  situations  that  imperialism  has 
flourished  best.  Governments,  that  of  the  United  States 
much  less  than  European  Governments,  have  taken  an 
active  interest  in  obtaining  for  their  citizens  ''conces- 
sions'' in  backward  countries  and  in  enforcing  their 
claims  subsequently,  often  without  a  careful  considera- 
tion of  the  equity  of  the  case.  In  America  the  policy 
of  the  Government  has  frequently  been  that  of  letting 
American  financial  interests  alone.  But  this  policy  in- 
stead of  solving  the  problem  has  resulted  in  more  trouble 
than  an  open  imperialistic  policy.  In  countries  where 
Governments  are  weak,  and  this  means  a  very  consider- 
able portion  of  the  earth's  surface,  strong  financial  in- 
terests have  an  unfair  advantage.  If  they  cannot  obtain 
the  concessions  they  desire  from  the  existing  Govern- 
ment, they  foment  and  finance  a  revolution,  and  thus 
establish  those  in  power  who  are  favorable  to  their  in- 
terests. Interesting  revelations  would  come  from  an 
investigation  of  the  relation  between  foreign  financial 


((I 


They  [the  combination  of  packing  companies]  suppress  real 
competition,  maintaining  it  only  in  appearance,  and  they  deter- 
mine by  common  agreement,  the  prices  which  are  to  be  paid  to 
producers,  reserving  to  themselves  the  right  to  sell  at  the  highest 
price  possible  in  order  to  obtain  enormous  profits  which  do  not 
remain  in  the  country.  Thus  it  is  that  these  freezing  companies 
have  been  able  to  show  in  their  latest  balance  sheets  more  than 
100  per  cent  of  profits,  that  is  to  say,  that  in  a  single  year  thev 
have  made  more  than  their  capital.  .  ,  .  Here  the  freezing 
companies  contract  with  the  foreign  purchaser,  who  to  today, 
owing  to  circumstances  of  the  war,  a  single  party,  since  the  Allied 
Governments  have  concentrated  their  purchases  in  a  central  office 
—  and  having  made  their  agreements  at  prices  which  they  raise  as 
high  as  possible,  they  purchase  the  live  stock  from  the  producers, 
imposing  upon  them  the  law  of  the  strongest.*' 

211 


f) 


i 


1' 


COMMERCIAL  TOLICY 

interests  and  revolutions  in  some  of  the  countries  of 
Latin-America.'' 

During  recent  years  the  greatest  significance  has  at- 
tached to  attempts  to  secure  concessions  to  develop  the 
oil  fields  near  Tampica,  Mexico.     This  contest  illustrates 
how  concessionaires,  becoming  entangled  in  political  dis- 
turbances, embroil  international  relations.     The  Waters- 
Pierce  Company,  a  branch  of  the  Standard  Oil  Company, 
was  the  first  to  recognize  the  value  of  this  field  and  to 
begin  its  development.      Shortly  thereafter  an  English 
capitalist.  Sir  Weetman  Pearson,  later  Lord  Cowdray, 
began  a  determined  competition.     Several  years  before 
he  had  rebuilt  an  old  railroad  in  Mexico  with  the  Mexi- 
can Government  as  an  equal  partner.     In  this  way  he 
had  gained  the  friendship  of  President  Diaz,  who  gave 
him  very  valuable  concessions.    He  was  given  a  conces- 
sion for  pipe  lines  and  a  railway.     Hi^  property  was 
exempted  from  local  taxation  and  from  export  duties. 
These  favors  under  severe  competitive  conditions  would 
probably  have  been  decisive.    However,  before  the  Mexi- 
can Congress  ratified  the  concession  granted  to  Lord 
Cowdray,  Diaz  was  overthrown.     Madero  was  said  to  be 
favorable  to  the  Americans,  while  Huerta,  who  shortly 
succeeded  to  power,  was  supposed  to  be  acceptable  to 
the  British  Company.     These  changes  in  political  con- 
trol in  Mexico  were  not  wholly  unconnected  with  the 
rival  financial  interests,  and  the  result  only  illustrates 
the  need   of  an   affirmative  policy  to   regulation  and 
control. 

The  complications  that  follow  from  the  unregulated 
lending  of  private  capital  to  weak  Governments  is  well 
illustrated  by  the  experience  of  the  United  States  with 

t;'  '^^^'of '^^^L''^^  Banana  Company  vs.  United  Fruit  Company,  160 
Fed.  184;  166  Fed.  261;  213  U.  S.  347. 

212 


COMMERCIAL  ACTIVITIES  ABROAD 

the  Dominican  Republic  and  Haiti.  In  1907  the  United 
States  entered  into  a  treaty  with  the  Dominican  Re- 
public under  which  we  undertook  to  establish  a  receiver- 
ship of  the  Dominican  customs  and  to  collect  and  apply 
the  revenues  to  the  expenses  of  the  Republic  and  the 
liquidation  of  the  debt  contracted  with  foreign  capital- 
ists. **  During  disturbed  political  conditions  in  the 
Dominican  Republic,"  the  treaty  recites,^  *' debts  and 
claims  have  been  created,  some  by  regular  and  some  by 
revolutionary  governments,  many  of  doubtful  validity  in 
whole  or  in  part,  and  amounting  in  all  to  over 
$30,000,000,  nominal  or  face  value."  In  Haiti  the 
*' pecuniary  claims  of  foreign  corporations,  companies 
and  citizens  or  subjects"  finally  forced  the  United  States 
to  establish  a  protectorate  and  undertake  to  supervise 
the  finances  of  the  country.^  Proper  supervision  and 
regulation  of  foreign  investments  would  have  made  un- 
necessary^ these  receiverships  the  administration  of  which 
the  United  States  has  been  forced  to  undertake. 

Such  situations  as  those  reviewed,  and  there  are  many 
others,  require  preventive  measures.  Instead,  the  im- 
perialists have  aggravated  them  and  the  advocates  of  a 
let-alone  policy  wait  until  the  burning  of  their  neigh- 
bor's house  threatens  their  own  before  they  try  to  put 
out  the  fire.  One  position  is  as  undemocratic  as  the 
other.  The  facts  must  be  faced  as  they  exist.  Im- 
perialism has  made  adjustments,  but  in  doing  so  has 
often  done  injustice  to  weak  peoples,  and  when  diplo- 
macy failed,  war  has  followed.     Many  of  the  causes  of 

8  Malloy,  Treaties f  Conventions,  International  Acts,  Frotocols 
and  Agreements  between  the  United  States  and  Other  Powers, 
1776-1909,  vol.  i,  p.  418. 

9  Treaty  between  the  United  States  and  Haiti,  proclaimed  May 
3,  1916.      Treaty  Series  No.  623. 

213 


i 


COMMERCIAL  POLICY 

the  Great  War  are  to  be  sought,  not  in  Europe,  but  in 
the  economically  backward  parts  of  Asia  and  Africa. 
The  anti-imperialists  have  frequently  attributed  to  for- 
eign Governments  a  sovereignty  which  they  in  reality 
did  not  have  the  power  to  enforce.      They  have  also 
assumed  that  we  could  surrender  responsibility  for  the 
activities  abroad  of  American  business  interests,  but  this 
cannot  be  done.     Just  as  the  export  of  goods  and  capital 
from  the  United  States  is  inevitable,  so  sooner  or  later 
will  our  national  interests  be  involved.      The  solution 
will  not  come  by  ignoring  the  conditions  or  by  complain- 
mg  about  their  evil  effects.     It  is  our  duty  not  only  to 
assist  actively  in  developing  the  backward  parts  of  the 
world,  but  also  to  establish  such  governmental  regulation 
of  the  activities  of  our  commercial  interests  abroad  as 
will  reduce  friction  to  a  minimum  and  will  make  our 
boasted   democratic   ideals  a   reality  in   our  economic 
relationships. 

It  is  inconsistent  with  democratic  principles  to  pursue 
unfair  trade  methods,  to  monopolize  raw  materials    to 
seek  special  tariff  advantages  by  means  of  special  bar- 
gaining, to  permit  colonial  monopoly,  and  to  employ 
predatory  aggressive  methods  in  foreign  investments. 
1  he  economic  weapon  may  be  used  in  defense  or  in  con- 
junction with  other  nations  to  enforce  the  common  will 
of  mankind,  but  predatory  methods  of  trade  and  finance 
are  never  to  be  justified.     The  American  people  should 
see  to  It  that  their  Government  does  not  pursue  an  im- 
perialistic policy  and  that  it  establishes  such  machinery 
for  the  regulation  of  American  commercial  activities  as 
will  prevent  them  from  embroiling  the  nation  with  other 
peoples.     It  is  only  by  doing  this  that  we  can  prepare 
ourselves  to  be  a  part  of  a  democratic  League  of  Nations 

214 


COMMERCIAL  ACTIVITIES  ABROAD 

The  principle  of  regulating  commercial  interests 
abroad  is  not  wholly  unfamiliar  to  the  American  public 
In  the  Export  Association  Act  passed  in  1918  the  sec- 
tions which  are  most  significant  are  not  those  removing 
the  prohibitions  of  the  anti-trust  laws  from  export  as- 
sociation, but  those  relating  to  unfair  competition  and 
regulation.  The  law***  empowers  the  Federal  Trade 
Commission  to  prevent  ^*  unfair  methods  of  competition 
used  in  export  trade  against  competitors  engaged  in  ex- 
port trade,  even  though  the  acts  constituting  such  unfair 
methods  are  done  without  the  territorial  jurisdiction  of 
the  United  States.'*  It  provides  for  regulation  of  the 
associations  '* engaged  solely  in  export  trade."  The  as- 
sociations are  required  to  file  with  the  Commission  the 
principal  facts  of  their  business,  and,  if  requested,  in- 
formation as  to  its  *' organization,  business,  conduct, 
practices,  management,  and  relation  to  other  associa- 
tions, corporations,  partnerships,  and  individuals." 
The  law  also  contains  methods  of  procedure  and  penal- 
ties. But  if  this  regulation  is  good  for  export  business 
carried  on  through  export  associations  organized  under 
this  Act,  it  is  good  for  all  export  trade. 

During  the  war  there  was  an  attempt  to  regulate  the 
investment  of  capital  which  furnishes  an  uncomfortable 
precedent  to  those  who  advocate  the  hasty  abandonment 
of  all  war-time  control.  The  Capital  Issues  Committee 
was  created  by  an  act  of  Congress  approved  April  5, 
1918,  and  took  over  the  work  which  for  some  months 
had  been  done  by  an  informal  body  created  by  the 
Federal  Reserve  Board.  Its  work,  it  states  in  its  re- 
port,*^ was  '*the  rationing  of  capital  for  use  only  by 

10  Quoted  in  full  in  Appendix  VIII. 

11  Eeport  of  Capital  Issues  Committee,  dated  December  2,  1918, 
submitted  to  the  House  of  Eepresentatives. 

215 


II 


COMMERCIAL  POLICY 


COMMERCIAL  ACTIVITIES  ABROAD 


m 


iji 
t 


those  enterprises  and  industries  which  served  some  im- 
mediate and  definite  military  or  economic  need."  *'It 
was  the  theory  of  the  law  creating  the  Committee, ' '  the 
report  continues,  ''that  every  dollar  of  private  credit 
was  an  asset  of  the  Government  which  must  not  be  put 
to  a  non-essential  use  during  the  war."  This  experi- 
ence^2  disposes  at  least  of  the  objection  that  it  is  not 
practicable  to  regulate  the  investment  of  capital.  If 
it  can  be  done  for  war  purposes,  so  can  it  be  done  for 
the  needs  of  peace. 

These  fragmentary  and  temporary  measures  of  con- 
trol are,  it  need  hardly  be  said,  but  suggestions  of  the 
regulation  which  might  be  worked  out.  All  that  is 
necessary  is  the  extension  of  the  same  regulatory  con- 
trol to  American  business  abroad  as  it  submits  to  at 
home.  In  the  vast  majority  of  cases  its  transactions  are 
just  and  fair.  Regulation  would  not  only  protect  the 
Government  from  complications  caused  by  the  un- 
scrupulous few,  but  it  would  protect  the  many  who  are 
trying  to  play  the  game  fairly.  Cooperation  between 
business  and  Government  in  the  interests  of  harmonious 
world  relations  will  serve  the  interests  of  all. 

The  American  people's  right  to  control  the  activities 
of  their  commercial  interests  abroad  is  based  in  part  on 
the  fact  that,  as  the  world  is  constituted  today,  unregu- 
lated  business  interests  sooner  or  later  involve  the 
national  interest.  Our  Government  is  called  in  to  ad- 
just a  situation  which  it  had  no  share  in  making.  Here, 
as  in  all  the  great  economic  problems  of  the  world,  the 
need  is  for  machinery  that  will  remove  the  causes  of 
conflict  or  prevent  them  from  arising. 


"For  an  accouiit  of  the  operations  of  the  Capital  Issues  Com- 
ation  %n  War  Time  and  After. 

216 


Any  measure  of  regulation  established  by  the  Ameri- 
can nation  alone  would  have  its  limitations.  The  com- 
mercial methods  of  foreign  rivals  are  always  a  factor  to 
be  considered,  and  over  these  our  Government  has  only 
such  control  as  may  come  from  negotiations.  The  regu- 
lations that  may  be  imposed  by  our  Government  are 
always  limited  by  the  competitive  position  of  Americans. 
Too  drastic  measures  would  drive  them  from  the  field. 
If  backward  countries  are  to  be  abandoned  to  exploita- 
tion with  only  a  shadowy  international  control,  there  is 
little  that  a  single  nation  can  do,  for  merely  to  force  its 
commercial  interests  to  withdraw  in  no  way  removes  the 
difficulty.  It  is  a  case  with  which  we  are  not  unfamiliar 
in  the  United  States,  where  conflicting  state  laws,  par- 
ticularly on  social  matters,  have  retarded  progress  and 
where  there  was  an  obvious  need  for  a  uniform  Federal 
law.  In  the  limitations  that  may  confront  a  democratic 
nation  earnestly  trying  to  establish  fair  dealings  lies  one 
of  the  most  conclusive  arguments  for  international 
regulation. 

But  these  limitations  furnish  no  excuse  for  the  refusal 
of  individual  nations  to  democratize  their  economic 
activities.  Reform  should  begin  at  home.  The  political 
democracies  which  waged  war  against  autocratic  Central 
Europe  have  in  their  midst  commercial  autocracies  which 
are  governed  by  the  same  ambitions  of  dominion  as  gov- 
erned Germany.  Fortunately,  there  is  a  strong  move- 
ment contesting  their  influence  which  is  insisting  that 
industry,  trade,  and  finance  shall  submit  to  democratic 
control.  It  is  this  influence  that  is  preparing  the  world 
for  a  League  of  Nations.  It  will  not  do  harm  to  say 
again  that  a  democratic  league  cannot  exist  unless  it  be 
composed  of  nations  democratic  to  the  core. 


217 


PART  III. 

WORLD 
COMMERCIAL  POLICIES 


Our  League  looks  to  a  union  of  the  democratic  nations  of 
the  world,  to  the  will  of  the  peoples,  expressed  through  their 
Governments,  as  its  basis  and  sanction.  It  looks  to  the  estab- 
lishment of  new  Governments  by  popular  choice  and  control. 
It  is  to  be  founded  on  justice,  impartially  administered,  and 
not  on  the  interests  of  Kings  or  Emperors  or  dynasties.  It  is 
to  rise  as  a  structure  built  upon  the  ashes  of  militarism,  and 
it  is  to  rest  on  the  pillars  of  justice  and  equality  and  the 
welfare  of  peoples.     ... 

The  League  does  not  contemplate  the  slightest  interference 
with  the  internal  government  of  any  country.  The  League 
does  not  propose  to  interfere,  except  where  the  claims  of  right 
of  one  country  clash  with  the  claims  of  right  of  another.  To 
submit  such  claims  of  right  to  an  imperial  tribunal  no  more 
interferes  with  the  sovereignty  of  a  nation  than  the  submission 
of  an  individual  to  a  hearing  and  decree  of  court  interferes 
with  his  liberty.  The  League  is  merely  introducing  into  the 
world's  sphere,  liberty  of  action  regulated  by  law,  instead  of 
license  uncontrolled  except  by  the  greed  and  passion  of  the 
individual  nation. 

Ex-President  Taft  at  Madison,  Wisconsin, 

November  9, 1918. 

My  conception  of  the  League  of  Nations  is  just  this  — that 
it  shall  operate  as  the  organized  moral  force  of  men  through- 
out the  world,  and  that  whenever  or  wherever  wrong  and 
aggression  are  planned  or  contemplated,  this  searching  light 
of  conscience  will  be  turned  upon  them,  and  men  everywhere 
will  ask,  "  WTiat  are  the  purposes  that  you  hold  in  your  heart 
against  the  fortunes  of  the  world." 

President  Wilson  at  Paris, 

December  21,  1918. 


CHAPTER  XII 

WHERE  NATIONAL.  CONTROL  BREAKS  DOWN 

Where  international  control  begins  —  Anarchy  in  international 
trade  — How  foreign  trade  should  not  be  promoted -— Boun- 
ties —  Imitating  trade-marks  and  designs  —  Depression  of 
prices  —  Espionage  —  Predatory  price  cutting  —  Discrimina- 
tions in  transportation  —  Efforts  of  nations  to  correct  evils  — 
How  nations  handle  unfair  practices  within  their  jurisdiction 
—  In  the  United  States— The  Courts  —  Federal  Trade  Com- 
mission—  Interstate  Commerce  Commission -— Attempts  to 
control  unfair  competition  by  international  action  —  Brussels 
Sugar  Convention  —  International  agreements  concerning  in- 
dustrial property  and  unfair  competition  —  International 
trade  and  commerce  commissions  —  The  penalty  for  refusal 
to  act. 

In  the  commercial  affairs  of  the  world  there  comes  a 
time  when  national  control  must  in  some  degree  yield  to 
international  control.  Even  complete  democracy  within 
individual  nations,  desirable  as  it  is,  is  not  sufficient. 
Nations  which  fully  democratize  their  internal  life  will 
still  find  themselves  confronted  by  problems  which  singly 
they  will  not  be  able  to  solve  but  which  will  require  their 
collective  effort.  Today  there  are  relations  between 
nations  which  are  not  adequately  regulated  by  either 
law  or  custom.  A  certain  amount  of  independence  of 
action  must  be  surrendered  by  individual  nations  in  order 
that  these  problems,  which  are  world-wide  and  which  no 
one  nation  in  and  of  itself  can  solve,  may  be  considered 
by  an  international  organization  looking  at  them  from 
the  world  point  of  view.  The  economic  life  of  the  world 
has  in  many  ways  burst  the  confines  of  the  individual 
state.  In  so  far  as  it  has,  it  is  without  a  coextensive 
control.  Nations  have  merely  accentuated  the  fierce- 
ness   of    individual   competition    in   world   trade    and 

221 


I 


COMMERCIAL  POLICY 

financing.  To  uncontrolled  individualism  has  been 
added  an  uncontrolled  nationalism.  This  situation 
points  conclusively  to  the  necessity  for  an  international 
organization  vested,  even  if  in  the  most  rudimentary 
form,  with  the  essential  elements  of  government. 

In  trade  between  nations  is  to  be  found  a  striking  in- 
stance  of  the  inadequacy  of  national  control.      In  the 
struggle  for  the  world's  markets  the  evils  resulting  from 
the  unrestrained  competition  of  private  interests,  only 
too  often  supported  and  urged  on  by  aggressive  and  im- 
perialistic  Governments,  have  been  most  prominent.     It 
is  in  international  affairs  that  the  let-alone  policy,  laissez 
faire,  has  had  the  freest  hand.     The  absence  of  a  regula- 
tive force  arbitrating  between  conflicting  interests  has 
resulted  in  economic  anarchy.     It  has  permitted  ruth- 
less, bitter,  unfair  competition  for  foreign  markets,  open 
and  concealed  bounties,  discriminations,  rebates  and  un- 
fair  practices  in  transportation.     No  international  body 
existed  before  the  war  that  could  lay  down  standards 
of  trade  and  competition  or  that  could  investigate  and 
give  publicity  to  unfair  practices.     Each  nation  pursued 
such  practices  as  it  dared  or  as  seemed  necessary  in 
furthering  its  own  exclusive  interests. 

Foreign  trade  is  an  important  and  necessary  part  of 
the  world's  economic  life.  There  are  legitimate  ways 
m  which  a  nation  may  promote  its  export  business^  and 
the  war  has  made  it  doubly  necessary  that  the  nations 
adopt  them.  Industries  must  be  kept  running  both 
because  labor  needs  employment  and  because  only  by 
producing  wealth  can  the  wastage  of  war  be  repaired. 
A  period  of  depression,  low  wages,  and  unemployment 
may  bring  grave  social  and  political  disturbances.     But 

1  See  Chapter  IX,  '  ~ 

222 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 

in  the  plans  for  trade  promotion  the  national  idea  is 
over-emphasized.  The  unregulated  contest  for  markets 
is  beginning  again.  Can  the  world  ignore  the  inter- 
national element  with  impunity?  In  domestic  affairs 
nations  have  recognized  the  necessity  of  adopting  means 
of  preventing  unfair  discriminations  in  trade  and  trans- 
portation. In  international  affairs  a  similar  regulation 
is  essential.  One  of  the  results  of  the  war  should  be  a 
frank  recognition  of  the  fact  that  there  are  some  ways 
in  which  export  trade  should  not  be  promoted. 


Only  brief  reference  can  be  made  to  the  nature  and 
variety  of  unfair  methods  employed  in  foreign  commerce. 
Among  the  best  known  are  bounties,  both  direct  and 
indirect,  on  production  and  exportation.  Bounties  may 
be  concealed  in  drawbacks.  Drawbacks  are  intended  to 
refund  to  exporters  the  customs  duties  they  have  paid  on 
raw  or  semi-manufactured  materials.  If  they  do  no 
more  than  this,  they  are  entirely  proper.  They  may  be 
devised  to  give  the  exporter  more  than  compensation 
and  thus  become  a  concealed  bounty.  Ship  subsidies 
may  be  granted  by  a  Government  on  the  understanding 
that  lower  shipping  freights  or  preferential  service  will 
be  given  to  citizens  of  the  country  in  question. 

Counterfeiting  and  imitating  the  goods  of  a  foreign 
competitor  are  not  infrequent  in  foreign  commerce.  A 
manufacturer  may  build  up  by  advertising  a  good  will 
of  great  value  in  a  trade-mark,  a  design,  or  a  carton. 
His  foreign  customers  come  to  associate  quality  with  his 
distinctive  marks.  Among  uneducated  peoples  the  label 
on  a  package,  when  once  it  has  become  familiar  to  the 
eye  of  the  purchaser  and  he  has  learned  that  it  is  the 
brand  of  a  good  article,  acquires  a  peculiarly  great  im- 
portance as  a  selling  factor.      Into  this  market  there 

223 


I 


COMMERCIAL  POLICY 

may  come  an  exporter  from  another  country  who  imitates 
the  established  trade-mark  or  design  and  attempts  to 
pass  his  goods  off  for  those  of  the  other. 

The  artificial  depression  of  prices  by  organized  buyers 
is  another  unfair  practice  in  trade  between  nations. 
In  the  United  States,  for  example,  the  individualistic 
character  of  our  industry  in  some  cases  enabled  foreign 
buyers  to  play  one  producer  off  against  another  and 
thus  depress  prices.  The  copper  industry  at  times 
suffered  from  the  well  laid  plans  of  German  metal  in- 
terests.  The  business  was  demoralized  and  American 
resources  sacrificed.^ 

Espionage  may  be  carried  out  through  foreign  banks. 
It  is  asserted  frequently  that  foreign  banks  reveal  to 
their  home  connections  details  they  have  learned  from 
patrons  of  other  nationalities.  The  president  of  an 
American  locomotive  company  testified  before  the  Fed- 
eral Trade  Commission  that  when  he  had  to  deal  through 
a  German  bank  he  had  evidence  that  his  German  com- 
petitors were  informed  completely  as  to  American  pro- 
duction costs  and  other  business  secrets.^ 

Unfair  price  cutting  for  the  purpose  of  destroying  a 
competing  industry  or  for  the  purpose  of  putting  a  com- 
petitor out  of  business  clearly  raises  an  international 
question.  Each  country  may  handle  this  practice  within 
its  own  jurisdiction  by  anti-dumping  legislation,'*  but 
some  countries  have  no  such  law.  Countries  that  have 
no  industries  to  protect  may  welcome  ''dumping"  and 
the  effect  it  may  have  on  a  foreign  firm  is  of  little  con- 
cern to  them.  Unfair  competition  is  likely  to  take  place 
in  parts  of  the  world  where  local  laws  which  condemn 

3  Federal  Trade  Commission,  Cooperation  in  American  Export 
Trade,  vol.  i,  p.  361. 
3  Ibid.,  p.  61. 
*  See  Chapter  VIII. 

224 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 

it  are  absent.  But  it  is  just  such  situations  as  these  that 
cause  mternational  complications  and  persuade  Govern- 
ments  to  extend  their  arm  in  the  defense  of  their  citizens 
Many  other  unfair  practices  might  be  mentioned.  They 
include  the  inducement  of  breach  of  contract,  ''full-line 
forcing,-  bribery,  threats,  disparagement  of  goods,  false 
and  misleading  advertising,  fighting  brands,  and  boy- 
cotts. These  examples  will  serve  to  suggest  the  sort  of 
methods  that  are  undesirable  in  developing  trade  be- 
tween nations. 

Not  less  objectionable  than  unfair  methods  of  com- 
petition between  nations  are  discriminations  in  com- 
munication and  transportation.      Steamship  lines  and 
cables  are  not  looked  upon  as  international  public  utili- 
ties but  as  national  assets.     It  is  certain  that  their  con- 
trol has  frequently  been  used  to  the  advantage  of  the 
country  that  controls  them.     Under  the  strong  national- 
istic influences  which  have  prevailed  this  was  to  be 
expected  in  some  degree.      By  means  of  cable  control 
trade  secrets  have  been   revealed  to  competitors  and 
orders  interfered  with. 

Special  railroad  rates  allowed  by  some  countries  on 
goods  destined  for  export  is  a  questionable  practice.     If 
not  undesirable  in  all  cases,  it  is  susceptible  of  unfair 
use,  for  it  is  in  the  nature  of  a  bounty.     More  serious 
are  discriminations  in  ocean  transportation,  the  granting 
of  preferences  in  rates  and  services  to  goods  of  the  coun- 
try owning  the  ships.     The  control  of  a  merchant  marine 
and  strategic  points  on  the  important  trade  routes  where 
good  harbors,  fresh  water,  bunker  coal  or  oil  may  be 
furnished  has  been  of  great  material  advantage  to  trad- 
ing nations  in  the  past.     In  addition  to  the  deliberate 
discriminations  in  Bates,  cargo  space,  and  routing,  which 

225 


11 


COMMERCIAL  POLICY 

were  frequent  enough,  there  were  many  unintentional 
discriminations  against  nations  which  used  lines  of 
merchant  vessels  controlled  by  others.  British,  Ger- 
man, and  Japanese  vessels  naturally  adapted  their  going 
and  coming  to  the  needs  of  their  own  traders,  and  when 
.the  transportation  company  had  a  direct  interest  in  the 
trading,  it  operated  not  as  a  common  carrier  but  as  a 
competitor. 

Individual  nations  have  properly  tried  to  protect 
themselves  against  unfair  trade  and  transportation 
practices.  Countervailing  duties  have  been  used  against 
bounties,  anti-dumping  legislation  against  price  cutting, 
bargaining  tariffs  and  retaliation  against  other  prac- 
tices. Negotiations  have  resulted  in  separate  agree- 
ments between  nations  for  the  protection  of  industrial 
property.  But  it  cannot  be  pretended  that  action  by 
single  nations  or  bargaining  among  them,  two  by  two, 
will  solve  the  problem.  The  problem  is  essentially  in- 
ternational in  character.  Its  most  serious  features  re- 
late to  competition  in  economically  backward  countries 
where  the  interests  of  great  trading  nations  clash  most 
harshly.  In  such  places  the  local  Government  furnishes 
no  protection  and  the  imperialistic  tendencies  of  their 
home  Governments  often  merely  help  to  embitter  the 

traders'  contest. 

These  practices,  therefore,  contribute  to  trade  wars. 
They  are  a  part  of  a  system  which  holds  that  a  nation's 
only  means  of  protection  is  in  its  own  economic  and 
military  power.  Until  nations  can  find  protection  and 
security  in  a  just  international  organization,  they  will 
make  trade  plans  and  build  ships  with  a  view  to  winning 
trade  wherever  they  can  and  by  any  method  they  care 
to  adopt.     So  the  Allies  planned  at  the  Paris  Confer- 

226 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 

ence  in  June,  1916.^  Happily  military  victory  has  made 
this  plan  for  trade  war  unnecessary,  but  it  should  serve 
as  a  warning.  .We  must  move  forward  to  a  position 
where  foreign  trade  will  be  controlled  in  the  interests 
of  world  peace  and  prosperity.  One  of  the  chief  tasks 
before  tJie  democracies  of  the  world  is  to  introduce 
democratic  principles  into  foreign  commercial  relations. 

In  considering  methods  for  preventing  and  regulating 
unfair  practices  in  international  trade,  the  methods  by 
which  nations  have  handled  similar  problems  within 
their  own  borders  furnish  analogies  which  may  be  con- 
sidered with  profit.  All  the  leading  countries  of  the 
world  have  laws  dealing  with  business  competition  which 
suggest  valuable  precedents  to  guide  in  the  regulation 
of  trade  between  nations,^  but  only  those  of  the  United 
States  will  be  considered  here.  These  are  particularly 
significant  because  of  the  federal  character  of  the  Ameri- 
can Union.  At  common  law  many  unfair  practices  were 
held  unlawful.     They  have  been  classified  as  follows  :^ 

(a)  Inducing  breach  of  competitors'  contracts;  (b)  enticing 
employees  from  the  service  of  competitors;  (c)  betrayal  of 
trade  secrets;  (d)  betrayal  of  confidential  information;  (e) 
appropriation  of  values  created  by  competitors'  expenditures; 
(/)  defamation  of  competitors  and  disparagement  of  com- 
petitors' goods;  (g)  misrepresentation  by  means  other  than 
words;  {h)  false  claims  to  testimonials;  (i)  intimidation  of 
competitors'  customers  by  threats  of  infringement  suits;  (j) 
combinations  to  cut  off  competitors'  supplies  or  to  destroy 
their  market;  (k)  intimidation,  obstruction,  and  molestation  of 
competitors  or  their  customers;  (l)  preventing  the  sale  of 
competing  goods  by  demanding  contracts  for  exclusive  deal- 


^  Appendix  IL 

6  Department  of  Commerce,  Bureau  of  Corporations,  Trust  Laws 
and  Unfair  Competition  (1915),  Chapters  5  and  10. 

7  Ibid.,  p.  334. 

227 


COMMERCIAL  POLICY 


ing;  (m)  bribery  of  employees;  (w)  competing  with  purchaser 
after  the  sale  of  business  and  good  will;  (o)  passing  off  the 
goods  of  one  manufacturer  or  dealer  as  those  of  another. 

Particularly  voluminous  are  the  decisions  of  both 
British  and  American  courts^  forbidding  the  counter- 
feiting and  simulation  of  goods,  a  practice  in  inter- 
national trade  which  has  been  a  cause  of  so  much  irrita- 
tion. 

Under  the  Sherman  Anti-Trust  Act  also  the  American 

« 

courts  have  prohibited  unfair  methods  of  competition. 
The  Act  has  been  used  primarily  to  prevent  monopoly  by 
means  of  agreement  among  competitors  to  suppress  com- 
petition among  themselves,  but  it  has  been  found  that  a 
monopoly  may  also  be  brought  about  by  unfair  methods 
against  competitors.  The  courts  have,  therefore,  con- 
demned the  following  practices  as  ** unfair"  and  tending 
to  restrain  trade:  price  cutting,  the  use  of  ** fighting 
ships, "  "  bogus  independents, ' '  exclusive  dealing,  induc- 
ing breach  of  competitors'  contracts,  enticing  away  em- 
ployees, bribery  and  espionage,  boycotting  and  black- 
listing by  trade  associations,  price  discriminations,  and 
coercion,  threats  and  intimidations.^ 

Experience  in  handling  unfair  methods  of  competition 
in  the  United  States  led  finally  to  the  establishment  of 
the  Federal  Trade  Commission  which  in  addition  to 
wide  powers  of  investigation  has  power  to  prevent  unfair 
methods  of  competition.  Section  5  of  the  law  creating 
the  Commission  reads  in  part: 

That  unfair  methods  of  competition  in  (interstate)  com- 
merce are  hereby  declared  unlawful. 


8H.  D.  Nims,  The  Law  of  Unfair  Competition  and  Trade- 
Marks  (1917)  and  cases  there  cited. 

9  Department  of  Commerce,  Bureau  of  Corporations,  Trust  Laws 
and  Unfair  Competition  (1915),  Chapter  8. 

228 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 


The  commission  is  hereby  empowered  and  directed  to  pre- 
vent persons,  partnerships,  or  corporations,  except  banks,  and 
common  carriers  subject  to  the  acts  to  regulate  (interstate) 
commerce,  from  using  unfair  methods  of  competition  in 
(interstate)  conmierce. 

One  of  the  chief  arguments  in  favor  of  the  establish- 
ment of  an  administrative  Commission  was  that  unfair 
competitive  methods  could  be  prevented  before  they  had 
begun  to  bear  fruit  in  monopoly. 

No  unfair  practices  arise  in  international  commerce 
that  cannot  be  paralleled  by  cases  arising  in  the  inter- 
state commerce  of  the  United  States,  but  before  the 
obvious  conclusion  is  pointed  out,  the  method  by  which 
transportation  discriminations  have  been  prevented  in 
the  United  States  between  shippers  and  between  states 
should  be  considered.  The  Interstate  Commerce  Com- 
mission, limited  in  its  powers  at  first,  now  a  powerful 
regulative  force  in  interstate  commerce,  is  suggestive  of 
the  way  in  which  an  international  commerce  commission 
might  grow. 

One  of  the  powers  delegated  by  the  several  states  to 
the  Federal  Government  in  1787  was  the  power  *Ho 
regulate  commerce  with  foreign  nations,  among  the  sev- 
eral States,  and  with  the  Indian  tribes. ' '  The  unantici- 
pated development  of  the  facilities  of  transportation, 
particularly  the  railroads,  has  made  this  one  of  the 
most  far-reaching  of  all  the  clauses  of  the  Constitution. 
Discriminations  and  rebates  on  the  railroads  led  to  the 
establishment  in  1887  of  the  Interstate  Commerce  Com- 
mission.^^     The  remedy  that  the  American  Government 


10  An  adequate  study  of  the  development  of  the  Co:  -mission  can 
be  made  only  by  reference  to  its  decisions  and  the  decisions  of  the 
Courts,  especially  the  United  States  Supreme  Court.  Cf.  Judson 
on  Interstate  Commerce, 

229 


COMMERCIAL  POLICY 

tried  at  that  time  was  the  enactment  of  legislation  pro- 
hibiting the  undesirable  practices  and  the  creation  of  a 
Commission  to  assist  in  its  enforcement.  Strong  means 
of  enforcement  were  at  first  not  provided.  The  princi- 
pal dependence  was  placed  upon  publicity.  The  Com- 
mission was  given  power  to  compel  testimony,  to  examine 
the  books  of  the  railways,  to  hear  complaints,  and  to 
recommend  certain  courses  of  action.  If  the  railways 
did  not  comply,  it  could  institute  suit  before  the  Federal 
courts  to  enforce  obedience  to  its  suggestions.  For  a 
long  time  the  Commission's  work  was  not  decidedly 
effective,  because  inadequate  provision  was  made  for  it 
to  compel  testimony  and  to  enforce  publicity,  and  the 
court  procedure  was  too  slow;  but  undoubtedly  it  per- 
formed, even  at  this  stage,  an  important  function  in 
popularizing  the  idea  of  national  control.  By  the  acts 
of  1906  and  1910  it  was  given  administrative  authority 
and  power  to  put  its  decrees  into  effect,  subject  to 
judicial  review. 

The  experience  of  the  Interstate  Commerce  Commis- 
sion is  significant  as  a  precedent  for  international  action 
because  of  the  federal  nature  of  our  Government.  Not 
only  has  it  adjudicated  many  serious  cases  between 
railroads  and  shippers  involving  rebates  and  discrimina- 
tions, but  it  has  acted  as  arbiter  in  disputes  between 
states.  The  states  retain  jurisdiction  over  strictly  in- 
trastate transportation,  and  in  most  cases  have  estab- 
lished state  railroad  commissions  to  regulate  this  traffic. 
They  are  jealous  of  their  jurisdiction  against  the  Federal 
Government  just  as  nations  are  jealous  of  theirs  against 
international  control.  But  gradually  the  American 
states  have  been  forced  to  yield  their  jurisdiction  in  the 
interests  of  uniformity  and  fair  competition.  The  Inter- 
state Commerce  Commission  has  acted  as  arbiter  and 

230 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 

settled  cases  which  in  international  affairs  today  would 
probably  be  decided  by  war. 

Innumerable  cases  have  been  passed  on  by  the  Inter- 
state Commerce  Commission  preventing  discriminations 
and  rebates  that  favored  one  shipper  over  another.  The 
most  important  cases  for  our  purpose,  however,  are  those 
by  which  the  Commission  prevented  discrimination 'be- 
tween states.  One  of  the  most  extreme  cases,  but  one 
wliich  indicates  clearly  the  value  of  Federal  control,  is 
the  case  of  Houston  and  Texas  Railway  against  the 
United  States.^^  In  this  case  the  carriers  made  rates 
out  of  Dallas  and  other  Texas  points  into  eastern  Texas 
which  were  much  lower  than  those  they  granted  to 
shippers  from  Shreveport,  in  Louisiana,  into  Texas. 
The  rate  from  Shreveport  into  Texas  (the  interstate 
rate)  had  been  held  to  be  reasonable.  The  rate  within 
Texas  which  the  Interstate  Commerce  Commission  held 
to  be  an  unjust  discrimination  was  maintained  under 
authority  of  the  State  of  Texas.  It  was  necessary  either 
to  reduce  the  interstate  rate,  increase  the  intrastate  rate, 
or  adjust  the  two  to  a  basis  of  equality.  The  Interstate 
Commerce  Commission  held  that  the  railroads  were  re- 
lieve(}  from  further  obligation  of  observing  the  intra- 
state rates  and  that  they  might  increase  them  in  order 
to  remove  the  forbidden  discrimination.  On  appeal  it 
was  claimed  that  neither  the  Interstate  Commerce  Com- 
mission nor  even  Congress,  whose  agent  it  was,  had 
power  to  regulate  traffic  solely  within  the  state.  The 
United  States  Supreme  Court  sustained  the  Interstate 
Commerce  Commission.  Justice  Hughes  said  in  render- 
ing the  decision : 

It  is  unnecessary  to  repeat  what  has  frequently  been  said  by 
this  court  with  respect  to  the  complete  and  paramount  char- 

11  Houston  &  Texas  Eailway  vs.  U.  S.,  234  U.  S.  342  (1913). 

231 


COMMERCIAL  POLICY 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 


acter  of  the  power  confided  to  Congress  to  regulate  commerce 
among  the  several  States.  It  is  of  the  essence  of  this  power 
that,  where  it  exists,  it  dominates.  Interstate  trade  was  not 
left  to  be  destroyed  or  impeded  by  the  rivalries  of  local  gov- 
ernments. The  purpose  was  to  make  impossible  the  recur- 
rence of  the  evils  which  had  overwhelmed  the  Confederation 
and  to  provide  the  necessary  basis  of  national  unity  of  insuring 
**  uniformity  of  regulation  against  conflicting  and  discriminat- 
ing state  legislation."  By  virtue  of  the  comprehensive  terms 
of  the  grant,  the  authority  of  Congress  is  at  all  times  adequate 
to  meet  the  varying  exigencies  that  arise  and  to  protect  the 
national^  interest  by  securing  the  freedom  of  interstate  com- 
mercial intercourse  from  local  control.    .    .    . 

The  fact  that  carriers  are  instruments  of  intrastate  com- 
merce, as  well  as  of  interstate  commerce,  does  not  derogate 
from  the  complete  and  paramount  authority  of  Congress  over 
the  latter  or  preclude  the  Federal  power  from  being  exerted 
to  prevent  the  intrastate  operations  of  such  carriers  from  being 
made  a  means  of  injury  to  that  which  has  been  confided  to 
Federal  care.  Wherever  the  interstate  and  intrastate  trans- 
actions of  carriers  are  so  related  that  the  government  of  the 
one  involves  the  control  of  the  other,  it  is  Congress,  and  not 
the  State,  that  is  entitled  to  prescribe  the  final  and  dominant 
rule,  for  otherwise  Congress  would  be  denied  the  exercise  of 
its  constitutional  authority  and  the  State,  and  not  the  Nation, 
would  be  supreme  within  the  national  field.     .    .    . 

We  find  no  reason  to  doubt  that  Congress  is  entitled  to  keep 
the  highways  of  interstate  communication  open  to  interstate 
traffic  upon  fair  and  equal  terms.  That  an  unjust  discrimina- 
tion in  the  rates  of  a  common  carrier,  by  which  one  person  or 
locality  is  unduly  favored  as  against  another  under  substan- 
tially similar  conditions  of  traffic,  constitutes  an  evil  is  un- 
deniable ;  and  where  this  evil  consists  in  the  action  of  an  inter- 
state carrier  in  unreasonably  discriminating  against  interstate 
traffic  over  its  line,  the  authority  of  Congress  to  prevent  it  is 
equally  clear.     .     .     . 

We  are  not-  unmindful  of  the  gravity  of  the  question  that  is 
presented  when  state  and  Federal  views  conflict.  But  it  was 
recognized  at  the  beginning  that  the  Nation  could  not  prosper 
if  interstate  and  foreign  trade  were  governed  by  many  masters, 

232 


and,  where  the  interests  of  the  freedom  of  interstate  commerce 
are  involved,  the  judgment  of  Congress  and  of  the  agencies  it 
lawfully  establishes  must  control. 

In  a  later  decision^^  the  Supreme  Court  of  the  United 
States  summed  up  the  findings  of  the  Shreveport  case  in 
the  following  words : 

1.  Under  the  commerce  clause  of  the  Constitution  Congress 
has  ample  power  to  prevent  the  common  instrumentalities  of 
interstate  and  intrastate  commerce,  such  as  the  railroads,  from 
being  used  in  their  intrastate  operations  in  such  manner  as 
to  affect  injuriously  traffic  which  is  interstate. 

2.  Where  unjust  discrimination  against  interstate  commerce 
arises  out  of  the  relation  of  intrastate  to  interstate  rates  this 
power  may  be  exerted  to  remove  the  discrimination,  and  this 
whether  the  intrastate  rates  are  maintained  under  a  local 
statute  or  by  the  voluntary  act  of  the  carrier. 

3.  In  correcting  such  discrimination  Congress  is  not  re- 
stricted to  an  adjustment  or  reduction  of  the  interstate  rates, 
but  may  prescribe  a  reasonable  standard  to  which  they  shall 
conform  and  require  the  carrier  to  adjust  the  intrastate  rates 
in  such  way  as  to  remove  the  discrimination;  for  where  the 
interstate  and  intrastate  transactions  of  carriers  are  so  related 
that  the  effective  regulation  of  one  involves  control  of  the 
other,  it  is  Congress,  and  not  the  State,  that  is  entitled  to  pre- 
scribe the  dominant  rule. 

4.  It  is  admissible  for  Congress  to  provide  for  the  execution 
of  this  power  through  a  subordinate  body  such  as  the  Inter- 
state Commerce  Commission,  and  this  it  has  done  by  the  Act 
to  Regulate  Commerce. 

5.  Where  in  the  exercise  of  its  delegated  authority  the  Com- 
mission not  only  finds  that  a  disparity  in  the  two  classes  of 
rates  is  resulting  in  unjust  discrimination  against  interstate 
commerce  but  also  determines  what  are  reasonable  rates  for 
the  interstate  traffic,  and  then  directs  the  removal  of  the  dis- 
crimination, the  carrier  not  only  is  entitled  to  put  in  force  the 
interstate  rates  found  reasonable  but  is  free  to  remove  the 

12  Illinois  Central  Railway  Company  vs.  Public  Utilities  Com- 
mission, 245  U.  S.  493,  505-7  (1917).  Cf.  American  Express 
Company  vs.  Caldwell,  245  U.  S.  617  (1916). 

233 


fit 


COMMERCIAL  POLICY 

forbidden  discrimination  by  bringing  the  intrastate  rates  to 
the  same  level. 

These  remarks  of  the  Supreme  Court  of  the  United 
States  argue  not  only  for  a  unified  regulation  of  com- 
merce among  the  American  states  but  also  among  the 
nations  of  the  world.  Nations  individually,  no  more 
than  the  states,  can  determine  what  rules  shall  govern 
in  commerce  among  them.  There  must  be  a  common 
authority  which  acts  as  arbiter. 

International  action  to  regulate  competition  between 
nations,  however  inadequate,  is  not  wholly  lacking.  The 
most  conspicuous  and  successful  is  the  Brussels  Sugar 
Convention  which  stopped  the  direct  and  indirect 
bounties  on  European  sugar.  In  the  80  ^s  bounty-fed 
sugar  on  the  continent  of  Europe  became  more  and  more 
serious  as  an  international  problem.  Discriminations 
were  threatened.  Negotiations  were  instituted.  It  was 
not  until  March  5, 1902,  however,  that  an  agreement  was 
reached.  In  the  Sugar  Convention  of  that  date  Ger- 
many, Austria-Hungary,  Belgium,  Spain,  France,  Great 
Britain,  Italy,  The  Netherlands,  and  Sweden  agreed  to 
suppress  direct  and  indirect  bounties  on  the  production 
and  exportation  of  sugar  and  to  establish  no  bounties 
during  the  term  of  the  treaty.  It  was  agreed  that  the 
import  duties  on  sugar  imported  by  the  signatories 
should  not  exceed  the  internal  taxes  on  sugar  by  more 
than  six  francs  per  100  kilograms  for  refined  sugar  or 
5.50  francs  for  other  sugars.  In  another  article  the 
signatories  agreed  to  levy  an  import  tax  equal  to  the 
bounty  on  sugar  imported  from  countries  granting  a 
bounty.  A  permanent  Sugar  Commission  and  Bureau 
at  Brussels  was  established  charged  with  administrative 
duties  and  with  the  power  to  gather  and  publish  in- 

234 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 

formation.  Russia  became  a  party  to  the  convention 
in  1907.  On  March  17,  1912,  the  Convention  was  ex- 
tended for  five  years,  but  while  one  or  two  new  countries 
were  added,  Italy  and  Great  Britain  withdrew. 

The  fourth  International  Congress  of  American  States, 
which  met  at  Buenos  Aires  in  1910,  adopted  conventions 
designed  to  protect  inventions,  patents,  trade-marks,  and 
trade  names.  Infringement  of  the  rights  of  citizens  of 
any  signatory  country  was  made  punishable  according  to 
the  laws  of  the  country  in  which  the  offense  was  com- 
mitted. Two  international  bureaus  were  established 
for  the  registration  of  trade-marks  —  one  at  Havana  to 
register  those  coming  from  North  and  Central  America, 
and  one  at  Rio  de  Janeiro  to  register  those  from  South 
America.  A  trade-mark  registered  in  one  country  was 
to  have  priority  in  all  the  countries  for  a  specified 
period.^^ 

The  most  important  of  these  agreements  is  that  of  the 
International  Union  for  the  Protection  of  Industrial 
Property,  which  was  formed  in  Paris  in  1883.  With 
succeeding  additions  and  modifications  this  agreement 
was  signed  at  Washington  in  1911  by  representatives  of 
all  the  leading  nations.     It  provides  :^* 

Art.  2.  The  subjects  or  citizens  of  each  of  the  contracting 
countries  shall  enjoy,  in  all  other  countries  of  the  Union,  with 
regard  to  patents  of  invention,  models  of  utility,  industrial 
designs  or  models,  trade-marks,  trade  names,  the  statements  of 
place  of  origin,  suppression  of  unfair  competition,  the  advan- 
tages which  the  respective  laws  now  grant  or  may  hereafter 
grant  to  the  citizens  of  that  country.     Consequently,  they  shall 

13  Sen.  Doc.  1063,  62d  Cong.,  3d  Sess.,  Treaties,  Conventions, 
International  Acts,  Protocols,  and  Agreements,  between  the  United 
States  of  America  and  Other  Powers,  vol.  iii,  p.  354. 

14  Department  of  Commerce,  Bureau  of  Corporations,  Trust 
Laws  and  Unfair  Competition  (1915),  p.  697. 

235 


COMMERCIAL  POLICY 

have  the  same  protection  as  the  latter  and  the  same  legal 
remedies  against  any  infringements  of  their  rights,  provided 
they  comply  with  the  formalities  and  requirements  imposed  by 
the  National  laws  of  each  State  upon  its  own  citizens.  Any 
obligation  of  domicile  or  of  establishment  in  the  country  where 
the  protection  is  claimed  shall  not  be  imposed  on  the  members 
of  the  Union.     .     .     . 

Art.  10.  All  the  contracting  countries  agree  to  assure  to  the 
members  of  the  union  an  effective  protection  against  unfair 
competition. 

The  German  courts  have  held  under  this  provision 
that  a  New  York  company  was  entitled  to  the  protection 
of  the  German  unfair  competition  law  even  though  it 
had  no  branch  establishment  in  Germany. 

An  international  agreement  for  the  prevention  of 
false  indication  of  the  origin  of  goods  was  entered  into 
at  Madrid  in  1891,  and  revised  at  Washington  in  1911, 
by  a  number  of  nations,  and  an  agreement  for  the  pro- 
tection of  works  of  literature  and  art  was  made  at  Berne 
in  1886  and  revised  at  Paris  in  1896  and  1908.  The 
United  States  is  not  a  signatory  of  this  last  agreement. 

The  most  constructive  proposal  that  has  come  from  an 
authoritative  source  for  a  greater  degree  of  uniformity 
and  for  better  means  of  enforcement  was  that  of  the 
Sixth  International  Congress  of  Chambers  of  Commerce 
and  Commercial  and  Industrial  Associations  which  met 
at  Paris  in  June,  1914.  A  special  report  was  made  to 
this  Congress  suggesting  that  it  undertake  to  secure  in- 
ternational action  for  the  suppression  of  unfair  practices 
on  the  basis  of  the  following  programme  :^^ 

1.  Legislation: 

(a)  The  general   adoption  internationally  of  the   French 
system  of  article  1382  of  the  Civil  Code. 

(b)  Recognition  of  unfair  competition  in  all  countries  as  a 
15  Ihid.,  p.  702.  " 

236 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 


penal  offense,  in  order  to  permit  the  public  ministry  to  initiate 
action. 

2.  Procedure: 

Installation  at  Berne  of  a  service  for  the  suppression  of 
unfair  competition,  whose  duty  it  shall  be  (a)  to  furnish  in- 
formation to  merchants  regarding  everything  that  relates  to 
bringing  suit  in  any  tribunal  of  a  country  signatory  to  the 
conventions  of  Paris,  Brussels,  and  Washington;  (5)  to  notify 
the  public  ministry,  that  has  jurisdiction,  of  cases  of  unfair 
competition. 

The  subcommittee  on  unfair  competition  in  its  report  recom- 
mended that  every  nation  should  make  an  effort  to  render 
eflScacious  the  resolutions  of  the  Washington  convention  and 
proposed  that  the  Congress  should  restrict  itself  to  one  special 
phase  of  unfair  competition,  viz,  corruption  and  corruptive 
practices,  which  affect  not  only  the  countries  where  they  are 
carried  on,  but  international  commerce  equally,  and  therefore 
require  international  intervention  for  their  suppression. 

The  subcommittee  submitted  resolutions  to  the  effect  that 
(1)  the  Congress  should  name  a  special  committee  to  study 
the  different  phases  of  unfair  competition  which  require  legis- 
lative intervention;  (2)  the  Congress  should  insist  upon  the 
necessity  of  special  legislation,  as  uniform  as  possible,  in  all 
countries  for  the  suppression  of  corruption.  It  recommended 
further  that  prohibited  acts  should  be  made  punishable  as  a 
crime  by  the  penal  code  of  each  country,  but  that  civil  prose- 
cution should  be  allowed,  which  would  enable  the  victims  of 
bribery  to  procure  compensation  for  injuries  sustained.  The 
Congress  held  that  such  special  legislation  should  facilitate  the 
prosecution  of  corrupt  practices  and  should  confer  the  right 
of  initiative  not  only  upon  the  public  ministry,  but  also  upon 
associations  and  individuals. 

The  proposals  of  this  Congress  were  never  put  into 
effect  as  the  great  war  broke  out  a  few  weeks  later,  but 
now  that  nations  are  ready  to  resume  their  search  for 
methods  of  dealing  with  unfair  practices  in  inter- 
national trade,  they  may  prove  a  valuable  guide.  The 
war  experience  added  at  least  one  constructive  element. 
The  inter-Allied  control  of  shipping,  food,  credit,  and 

237 


COMMERCIAL  POLICY 

raw  materials  demonstrated  that  nations  could  act  to- 
gether to  achieve  a  common  purpose  which  no  one 
country  could  achieve  alone. 

Such  international  arrangements  as  have  been  dis- 
cussed are  not  adequate.  They  have  very  clear  limita- 
tions. They  provide  safeguards  against  certain  unfair 
practices  in  countries  where  municipal  law  is  highly  de- 
veloped. But  suppose  a  country  has  no  law  against  un- 
fair competition  ?  No  provision  is  made  for  regulating 
competition  between  citizens  of  two  countries  competing 
in  a  third  economically  backward  country  which  has  a 
more  or  less  irresponsible  government  and  which  cannot 
be  depended  upon  to  enact  and  enforce  adequate  regu- 
lations. Nor  is  there  any  provision  for  regulating  dis- 
criminations in  communication  and  transportation.  Yet 
it  is  in  these  cases  that  danger  of  serious  conflict  lies. 

For  the  immediate  future  at  least  competition  will  re- 
main the  primary  regulatory  force  in  international  com- 
merce. How  then  shall  it  be  made  fair  ?  In  some  cases 
the  situation  has  been  recognized  as  intolerable  and  inter- 
national action  has  been  taken.  But  these  efforts  have 
been  piecemeal.  They  have  not  gone  to  the  root  of  the 
difficulty.  It  is  here  that  the  federal  experiences  of  the 
United  States  provide  valuable  guides  for  the  inter- 
national action.  Either  in  the  final  treaty  or  in  supple- 
mental conventions  the  powers  should  agree  to  eliminate 
from  international  commerce  unfair  practices  and  dis- 
criminations and  establish  a  commission  or  commissions 
under  the  League  of  Nations  to  investigate  and  give 
publicity  to  infringements  of  the  international  rules. 
Possibly  there  should  be  two  commissions,  one  dealing 
with  trade,  the  other  with  transportation,  as  in  the 
United  States.     It  will  not  be  necessary  (or  desirable)  to 

238 


a 


WHERE  NATIONAL  CONTROL  BREAKS  DOWN 

give  an  international  commerce  commission  plenary 
powier  at  first.  That  was  not  done  in  the  case  of  the  In- 
terstate Commerce  Commission,  and  as  for  the  Federal 
Trade  Commission,  it  was  the  continuation  of  the  Bureau 
of  Corporations  which  had  for  years  done  effective  work 
as  a  aiere  investigatory  body.  What  is  important  is  that 
in  establishing  an  international  commission  the  nations 
should  provide  it  with  a  set  of  general  rules  for  the 
regulation  of  international  commerce,  should  empower  it 
to  investigate  and  give  publicity  to  infractions  of  these 
rules,  and  should  permit  aggrieved  parties  to  lay  their 
complaints  before  it.  The  interpretation  and  extensions 
of  the  rules  would  gradually  establish  a  body  of  prece- 
dents, the  nations  would  get  more  and  more  confidence  in 
the  commission,  and  it  would  gradually  evolve  into  an 
organization  which  would  effectively  regulate  inter- 
national commerce.  The  necessity  of  such  a  commission 
is  clear,  to  anyone  who  knows  the  facts.  National  con- 
servatism and  national  pride  are  holding  us  back.  But 
the  economic  life  of  the  world  has  far  outrun  our  politi- 
cal organizations.  The  problems  of  international  ship- 
ping and  trade  cannot  be  handled  by  nations  singly. 
There  must  be  a  common  body  of  rules  and  a  central 
body  to  apply  them.  In  establishing  an  international 
commission  with  power  to  regulate  commerce  and  trade 
nations  will  not  give  up  anything  that  the  interests  of 
the  world  warrant  them  in  keeping.  If  such  a  forward 
step  is  not  taken,  what  will  be  the  penalty?  Nations 
will  return  to  the  unrestricted,  anarchistic  trade  methods 
of  the  past.  Competition  in  many  markets  will  be 
bitter.  Each  nation  will  feel  it  necessary  to  control 
colonies,  to  capture  spheres  of  influence,  to  obtain  con- 
cessions, and  to  build  a  merchant  marine  in  order  that 
its  economic  power  may  give  it  an  advantage.      No 

239 


COMMERCIAL  POLICY 

nation  is  g-oing  to  rely  on  another  to  do  it  justice.  The 
alternatives  before  the  nations  are  return  to  the  old  un- 
regulated competition  of  the  past  under  which  each 
nation  gets  all  that  it  can  according  to  standards  of  its 
own  making,  or,  the  preferable  choice,  the  establishment 
of  a  body  of  rules  on  international  trade  and  commerce 
and  the  creation  of  a  commission  under  the  League  of 
Nations  to  interpret  and  ultimately  to  administer  them. 


/il 


\ 


I 


•I 


CHAPTER  XIII 

AFTERMATH  OF  WAR-TIME  CONTROL  OF  FOOD  AND  RAW 
^  MATERIALS 

Food  and  raw  materials  as  factors  before  the  war  in  commercial 
policy  — Foods  — Significance   of   essential  raw   materials  — 
Position  of  Germany  with  reference  to  raw  materials  —  Ot 
Japan  —  Of  the  British  Empire  —  Of  the  United  ^  States  — 
•War-time  control  of  food  and  raw  materials  by  individual 
nations  — In  the  United  States  — Food  and  Fuel  Administra- 
tions—War   Trade  Board  — War   Industries  Board  — bhip- 
pinff   Control   Committee  —  Examples   of   national^  control  — 
Drift     toward     international     control  —  Commission     Inter- 
nationale   de    KavitaiUement  — Allied    Maritime    Transport 
Council  — Inter-Allied     Food     Council —  Inter-Allied     Muni- 
tions Council  — Inter-Allied  Programme  Committees  on  Raw 
Materials  —  Permanent     effect    of    war-time     experiences — 
Dancers  from  absence  of  international  regulation  —  Possibili- 
ties of  trade  warfare  suggested  by  war  experiences  and  plans 
—  Necessity  for  joint  action  among  nations. 

War-time  experiences  have  disclosed  with  great  clear- 
ness the  importance  in  commercial  policy  of  the  control 
of  food  and  essential  raw  materials.  Prior  to  the  war 
only  in  isolated  cases  did  nations  attempt  to  use  their 
control  of  food  and  raw  materials  for  bargaining  or  for 
other  national  ends.  In  the  few  cases  in  which  this  was 
done,  it  was  for  the  purpose  of  exacting  an  export  tax 
or  regulating  the  price  of  a  product.  Chile  had  used  her 
monopoly  of  nitrates  to  levy  an.  export  tax,  which  was 
paid  ultimately  by  the  foreign  consumer.  Brazil  used 
her  coffee  monopoly  in  like  manner.  Germany  limited 
the  amount  of  potash  that  might  be  taken  for  export 
from  her  practically  inexhaustible  supply.  A  Govern- 
ment monopoly  of  camphor  in  Japan  was  used  to  limit 
production  and  to  regulate  prices.  A  semi-public  sisal 
monopoly  in  Yucatan  fixed  the  export  price  of  that 

241 


I 


COMMERCIAL  POLICY 

product.  Other  cases  might  be  cited,  but  as  a  general 
thing  foods  and  raw  materials  moved  in  international 
trade  before  the  war  without  interference  from  govern- 
ment. As  the  war  progressed,  it  became  more  and  more 
evident  that  the  economic  as  well  as  the  military  strength 
of  the  contestants  would  be  a  factor  in  the  final  decision. 
Governments  began  to  concern  themselves  with  feeding 
their  peoples  and  with  keeping  their  essential  industries 
supplied  with  raw  materials  and  fuel.  First  national, 
then  international,  machinery  was  developed  to  regulate 
and  stimulate  production  and  to  direct  distribution. 
The  nations  thus  emerged  from  the  war  conscious,  first, 
of  the  potential  possibilities  for  bargaining  and  for  trade 
wars  which  exist  in  the  control  of  essential  raw  ma- 
terials, and  second,  of  the  far-reaching  possibilities  of 
control  of  the  world's  economic  forces  by  nations  either 
singly  or  jointly.  Before  discussing  the  methods  of  con- 
trol adopted  during  the  war  and  the  bearing  they  have 
on  post-war  policies,  it  will  be  helpful  to  survey  briefly 
the  position  of  the  important  nations  with  reference  to 
the  raw  materials  of  the  world. 

Interest  in  the  various  foods  and  raw  materials  de- 
pends upon  several  factors,  among  which  may  be  men- 
tioned the  utility  of  the  article,  its  scarcity,  the  fre- 
quency of  its  occurrence  in  different  parts  of  the  world, 
the  elasticity  of  supply,  and  the  degree  to  which  sub- 
stitutes are  available.  In  ordinary  times  the  distribu- 
tion of  most  of  the  foods  presents  no  complex  problem 
from  an  international  standpoint.  This  is  not  because 
they  are  produced  in  excess  quantities,  but  because  sub- 
stitutes are  generally  available  for  any  particular  food 
that  may  be  scarce.  Rye,  for  example,  may  be  used  in- 
stead of  wheat,  and  fish  may  be  substituted  for  meat. 

242 


/ 


' 


- 


CONTROL  OF  FOOD  AND  RAW  MATERIALS 

The  problems  here  are  mainly  those  of  the  stimulation 
of  production  and  the  facilitating  of  distribution  within 
each  country.    But  there  are  certain  essential  raw  ma- 
terials the  production  of  which  is  confined  to  definite 
regions  and  the  supply  of  which  is  strictly  limited.    It  is 
the  control  of  these  materials  which  has  an  important 
bearing  upon  the  determination  of  commercial  policy. 
Coal,  iron,  cotton,  and  wool,  for  example,  are  absolutely 
indispensable  to  successful  manufacturing   operations, 
and  their  supply  is  unequally  distributed.      It  is  the 
presence  of  coal  and  iron  that  lends  such  significance  to 
Lorraine  and  the  Saar  Valley.      Copper  is  plentiful  in 
but  few  countries,  and  the  zinc  control  was  an  object 
of  much  scheming  by  the  Germans  before  the  war.     The 
necessity  for  manganese,  tungsten,  and  chromium  in  the 
steel  industry  has  given  these  metals  an  importance  out 
of  all  proportion  to  their  total  value.      Nitrates  are 
found  only  in  Chile,  and  potash  has  been  a  practical 
monopoly  of  Germany.      Jute  is  a  monopoly  of  India, 
and  the  oil-bearing  nuts  and  seeds  are  controlled  by 
certain  regions  of  the  world.     In  view  of  these  facts  it 
becomes  necessary  to  consider  what  sources  of  raw  ma- 
terials  each    of    the   important   nations   of    the   world 
controls.^ 

Germany  is  not  rich  in  the  essential  raw  materials. 
Within  her  territorial  limits  potash  is  the  only  product 
in  which  her  position  has  been  monopolistic,  and  now 
that  Alsace  is  to  return  to  French  rule,  this  monopoly 
will  cease,  since  the  rich  Alsatian  beds  of  potash  will 
pass  out  of  German  control.    Before  Germany  lost  Lor- 

iFor  a  more  extended  discussion  of  the  international  role  of 
mineral  raw  materials  see,  in  this  series,  George  Otis  Smith,  The 
Strategy  of  Minerals. 

243 


COMMERCIAL  POLICY 

raine,  she  needed  to  import  only  one-fourth  of  her  iron 
consumption.  With  the  Lorraine  mines  in  French 
hands,  she  will  have  to  import  the  greater  part  of  her 
iron  supply.  She  is  not  adequately  supplied  with 
manganese,  tungsten,  chromium,  or  molybdenum.  Dur- 
ing peace  her  copper  came  chiefly  from  the  United 
States ;  her  nickel  ore  from  New  Caledonia  and  Canada ; 
her  refined  nickel  from  the  United  States ;  her  tin  from 
the  East  Indies  and  Bolivia;  her  lead  from  Spain  and 
the  United  States ;  her  aluminium  from  Switzerland  and 
France;  her  antimony  from  China;  and  her  zinc  from 
Australia.  Germany  was  dependent  upon  the  United 
States  for  cotton,  on  the  British  Dominions  for  wool,  on 
India  for  jute,  and  on  Russia  for  flax  and  hemp.  She 
imported  great  quantities  of  hides  and  skins,  all  her  rub- 
ber, and  fertilizers,  such  as  phosphates  and  nitrates. 
For  a  large  part  of  her  timber  she  relied  upon  Russia 
and  Austria-Hungary.  She  exported  some  coal,  but 
imported  almost  all  of  her  petroleum.  Oleaginous 
products,  such  as  copra,  palm  kernels,  and  the  like,  were 
imported  from  the  British  and  other  tropical  possessions. 
Before  the  war  Germany  had  obtained  economic  con- 
trol of  the  supply  of  certain  raw  materials  under  for- 
eign sovereignties.  One  of  the.  most  conspicuous  cases 
was  her  control  of  the  zinc  supply  of  Australia.  Her 
experience  in  the  war,  however,  made  her  eager  to  get 
political  control  over  sources  of  raw  materials,  and  it 
was  this  motive  in  part  which  inspired  the  extreme 
economic  terms  imposed  by  the  Central  Powers  on  the 
Ukraine  and  Rumania  following  the  breakdown  of 
Russia  on  the  eastern  front.  The  provisions  of  the 
Rumanian  treaty  showed  how  insidious  were  Germany's 
methods  with  reference  to  the  Rumanian  oil  supply. 
Ukrainian  resources  are  rich  in  iron,  manganese,  and 

244 


CONTROL  OF  FOOD  AND  RAW  MATERIALS 

other  essential  materials.  The  plan  of  Germany  for  a 
Mittel  Enropa  was  in  part  inspired  by  a  desire  to  con- 
trol politically  the  sources  of  raw  materials  essential  to 
her  industries.  During  the  war,  when  Mittel  Europa 
was  temporarily  in  existence,  Germany  obtained  flax  and 
platinum  from  Russia,  large  quantities  of  iron  ore  from 
Sweden,  magnesite  and  quicksilver  from  Austria,  copper 
and  chromium  from  Persia,  and  many  other  essential 
materials  from  the  countries  over  which  she  held  military 
or  political  control. 

Japan  also  is  poor  in  essential  raw  materials.  Her 
position  in  the  production  of  raw  silk  is  a  dominant  one, 
and  she  has  a  monopolistic  control  of  camphor.  In 
Japan  proper  there  are  sufficient  coal  and  petroleum  to 
supply  domestic  needs.  But  all  her  industries,  except 
silk  manufactures,  to  some  extent  the  pottery  industry, 
and  certain  smaller  industries,  must  draw  their  material 
from  abroad.  This  is  particularly  true  of  her  cotton, 
iron,  and  wool  industries. 

This  situation  is  one  of  the  reasons  for  the  eagerness 
with  which  the  Japanese  have  sought  to  control  the 
resources  of  continental  Asia.  Korea  and  Manchuria 
are  sources  from  which  Japan  is  now  drawing  timber, 
iron,  oil  seeds,  cotton,  and  other  materials.  The  re- 
sources of  China  also  have  to  some  extent  fallen  under 
her  control.2  jf  ghe  can  control  the  raw-material  sup- 
plies of  continental  Asia,  her  independence  in  many 
essential  industries  is  assured. 

The  British  Empire  is  self-sustaining  with  reference 
to  many  of  the  important  raw  materials,  but  in  others 
depends  upon  foreign  countries  for  its  supply.  Although 
"    2  See  Appendix  III,  for  Japan 's  demands  on  China  in  1915. 

245 


Hr 


4 


COMMERCIAL  POLICY 

^Syp^,  India,  and  other  parts  of  the  Empire  produce  an 
appreciable  amount  of  raw  cotton,  the  great  cotton  in- 
dustries of  Great  Britain  look  to  the  United  States  for 
about  three-fourths  of  their  supply.  On  the  other  hand, 
in  wool  the  Empire  is  rich.  Of  the  world's  exportable 
surpluses  of  raw  wool  of  the  finer  grades,  Australia,  New 
Zealand,  and  South  Africa  control  the  greater  part. 
India  has  a  monopoly  in  jute,  but  the  Empire  imports 
all  its  silk,  85  per  cent,  of  its  flax,  and  more  than  half 
of  its  hemp. 

The  Empire  probably  has  a  sufficient  supply  of  rubber. 
Brazil's  monopoly  in  rubber  has,  in  recent  years,  been 
broken  by  the  rubber  produced  on  plantations  in  the 
East  Indies.  The  British  are  growing  it  in  Ceylon,  the 
Federated  Malay  States,  Borneo,  and  in  India  near 
Madras.  Its  culture  is  also  developed  in  the  Dutch 
East  Indies. 

The  British  Empire  is  also  well  supplied  with  hides 
and  skins.  The  available  supply  of  fertilizer,  however, 
is  not  great.  Nitrates  are  obtained  from  Chile,  and 
potash,  before  the  war,  was  imported  from  Germany. 
Timber,  although  existing  in  large  tracts  in  Canada,  is 
imported  into  Great  Britain  largely  from  the  Scandi- 
navian countries.  The  Empire  has  an  adequate  supply 
of  coal,  but  is  deficient  in  petroleum.  This  latter  fact 
is  one  of  the  reasons  why  the  Mexican  supply  of 
petroleum  is  regarded  with  so  much  concern  by  the 
British. 

Vegetable  oils  from  palm  kernels  are  largely  controlled 
by  the  British.  Palm  kernels  are  produced  extensively 
in  British  West  Africa,  and  the  British  Government's 
control  over  these  products  is  one  of  the  most  significant 
developments  of  the  war.  Vegetable  oils  made  from 
copra,  cottonseed,  peanuts,  and  similar  products,  how- 

246 


CONTROL  OF  FOOD  AND  RAW  MATERIALS 

ever,   are   controlled  by   other   countries,   particularly 
France,  The  Netherlands,  and  the  United  States. 

Great  Britain  imports  about  one-third  of  her  iron,  m 
part  from  the  Scandinavian  countries.      Some  iron  is 
mined  in  the  Dominions,  and  there  are  large  reserves 
in  such  places  as  Newfoundland  and  Canada.      India 
produces  manganese,  and  the  Empire  has  a  supply  of 
tungsten  and  molybdenum.     Canada's  position  m  nickel 
is  dominant.      The  East  Indian  possessions  of   Great 
Britain  supply  the  greater  part  of  the  world's  tin.     In 
Australia  there  is  an  ample  supply  of  zmc.     The  pre- 
war importation  by  the  Germans  from  this  source  of 
supply  has  led  the  British  Government  to  take  over  the 
control  of  Australian  zinc  for  a  period  of  10  years.     The 
Committee  on  Commercial  and  Industrial  Policy  states 
in  its  report  on  essential  industries  :^ 

In  the  case  of  spelter,  we  are  informed  that  negotiations  be- 
tween the  British  and  Australian  Governments  have  resulted 
in  an  agreement  whereby  the  former  undertakes  to  purchase 
.  for  a  period  of  10  years  the  output  of  zinc  V^^dnced  m 
Australia  from  Australian  ores,  up  to  a  maximum  of  45,000 
tons  per  annum;  and  also  a  minimum  of  100,000  tons  per 
annum  of  AustraUan  concentrates,  with  an  option  of  taking  a 
further  50,000  tons  per  annum.     For  the  purpose  of  develop- 
ing spelter  production  in  Australia,  His  Majesty's  Govern- 
ment   have    undertaken    to    make    certain    advances    to    the 
Australian  Government,  repayable  within  a  prescribed  period 
Provision  is  being  made   for   the  treatment  m   the   United 
Kingdom  by  British  controlled  companies  of  the  concentrates 
so  purchased,  by  the  erection  of  two  large  zinc-smelting  works 
—  adioining  Government  explosive  works  —  each  for  the  treat- 
ment of  a  minimum  quantity  of  concentrates,  in  the  one  case 
entirely  Australian  and  in  the  other  Burmese  and  Australian, 
His  Majesty's  Government  making  advances  to  meet  the  cost 
of  erection  of  the  works  at  a  minimum  rate  of  mterest  and 

repayable  within  a  limited  term  of  years. 

3  British  Blue  Book  (Cd.  9032),  p.  3. 

247 


f 


COMMERCIAL  POLICY 

In  some  metals,  however,  the  Empire  is  lacking;  these 
include  antimony,  chromium,  and  particularly  copper. 

The  United  States  is  well  supplied  with  many  of  the 
most  essential  raw  materials.*     This  country  leads  the 
world  in  the  output  of  coal,  iron,  petroleum,  cotton,  and 
copper.     It  has  plenty  of  iron,  both  immediately  avail- 
able and  in  reserve.     The  United  States  has  supplies  of 
manganese,    chromium,    tungsten,   molybdenum,    quick- 
silver,  antimony,  and  magnesite  which,  although  in  most 
cases  not  comparable  in  quality  with  foreign  supplies, 
would  be  capable  of  considerable  development  in  case 
of  need.     The  war  has  stimulated  greatly  the  production 
of  many  of  these  rarer  metals.     The  United  States  has 
an  export  surplus  of  lead,  zinc,  and  aluminium.      We 
obtain  from  abroad,  however,  our  supplies  of  nickel  and 
tm.     We  import  about  one-third  of  our  wool,  all  of  our 
silk  and  jute,  half  our  hemp,  and  much  of  our  flax. 
Phosphates  are  exported,  but  with  the  exception  of  the 
new  supplies  developed  during  the  war,  nitrates  and 
potash  must  be  obtained  from  abroad.     All  the  rubber 
consumed  is  imported  and  a  considerable  amount  of 
hides  and  skins.     We  have  supplies  of  sulphur  and  tim- 
ber ample  enough  to  provide  surpluses  for  export. 

The  position  of  the  United  States  with  reference  to 
coal  and  oil  may  be  seen  from  some  comparisons.  In 
1913  the  world 's  production  of  coal  amounted  to  1,319,- 
642,848  long  tons.  Of  this,  508,893,052  tons  were  pro- 
duced in  the  United  States,  287,000,000  tons  in  the 
United  Kingdom,  272,962,293  tons  in  Germany;  the  other 
leading  producers  are  Austria-Hungary,  France,  and 
Russia.     The  coal  exports  of  the  United  Kingdom,  in- 

*  See  George  Otis  Smith,  op.  cit.,  on  the  position  of  the  United 
States  in  regard  to  mineral  raw  materials. 

248 


CONTROL  OF  FOOD  AND  RAW  MATERIALS 

eluding  that  used  for  bunkering,  amount  to  about  a  third 
of  her  production,  and  are  the  great  factor  in  the  coal 
trade  of  the  world.  British  coal  goes  to  France,  Italy, 
Germany,  the  Scandinavian  countries,  and  South  Amer- 
ica. The  United  States  and  Germany  export  large 
amounts,  the  former  principally  to  Canada,  the  latter  to 
northern  Europe.  France  imports  a  third  of  her  con- 
sumption, Russia  about  20  per  cent.,  Italy  nearly  all. 
There  are  vast  reserves  of  coal  in  the  world,  and  coal  is 
being  discovered  many  times  as  fast  as  it  is  being  con- 
sumed.  It  is  estimated  that  from  one-half  to  three- 
fourths  of  the  total  reserves  are  in  the  United  States. 
China  contains  large  deposits  of  anthracite. 

Over  half  the  world's  supply  of  petroleum  comes  from 
the  United  States.  Other  large  producers  are  Russia, 
Rumania,  Austria  (Galicia) ,  and  Mexico.  These  regions 
export  extensively.  The  world's  supply  is  ever  threat- 
ened  by  exhaustion.  It  is  estimated  that  the  supply  in 
the  United  States  may  last  but  about  20  years.  A  new 
process  of  extracting  petroleum  from  oil  shales  gives 
promise,  however,  of  materially  increasing  the  supply. 

The  shortage  of  coal  during  the  war  stimulated  the 
use  of  hydro-electric  power.  Already  before  the  war 
it  was  an  important  factor  in  production.  It  was  being 
developed  with  great  rapidity  in  South  America,  Canada, 
Norway,  and  Italy  as  well  as  in  other  parts  of  the  world. 

During  the  war  it  was  the  normal  practice  of  nations 
to  control  their  supplies  of  food,  raw  materials,  and 
fuel  in  the  interests  of  themselves  and  their  associates. 
The  organizations  in  the  United  States  which  dealt 
primarily  with  these  problems  were  the  Food  Adminis- 
tration, the  Fuel  Administration,  the  War  Trade  Board, 

249 


COMMERCIAL  POLICY 

the  War  Industries  Board,  and  the  Shipping  Board.*' 
Their  duties  were  performed  in  many  cases  in  conjunc- 
tion with  the  permanent  departments  and  commissions 
of  the  Government. 

On  August  10,  1917,  Congress  enacted  a  law  to  pro- 
vide for  the  national  security  and  defense  *'by  encourag- 
ing the  production,  conserving  the  supply  and  controlling 
the  distribution  of  food  products  and  fuel.''  This  Act 
states : 

That  by  reason  of  the  existence  of  a  state  of  war,  it  is 
essential  to  the  national  security  and  defense,  for  the  success- 
ful prosecution  of  the  war,  and  for  the  support  and  mainte- 
nance of  the  Army  and  Navy,  to  assure  an  adequate  supply 
and  equitable  distribution,  and  to  facilitate  the  movement  of 
foods,  feeds,  fuel,  including  fuel  oil  and  natural  gas,  and 
fertilizer  and  fertilizer  ingredients,  tools,  utensils,  implements, 
machinery,  and  equipment  required  for  the  actual  production 
of  foods,  feeds,  and  fuel,  hereafter  in  this  Act  called  neces- 
saries; to  prevent,  locally  or  generally,  scarcity,  monopoliza- 
tion, hoarding,  injurious  speculation,  manipulations,  and  pri- 
vate controls,  affecting  such  supply,  distribution,  and  move- 
ment; and  to  establish  and  maintain  governmental  control  of 
such  necessaries  during  the  war. 

Under  this  authority  the  President  established  both 
the  Food  Administration  and  the  Fuel  Administration. 
The  former  was  charged  with  the  duties  of  securing  the 
equitable  distribution  and  of  facilitating  the  movement 
of  foods,  feeds,  and  other  derivative  products.  The 
Food  Administration  accomplished  its  purposes  to  some 
extent  through  the  issuing  of  licenses,  but  more  largely 
through  voluntary  agreements  and  educational  propa- 
ganda.     It  was  successful  in  eliminating  many  unfair, 


^  For  a  detailed  survey  of  the  functions  and  organization  of 
these  agencies  see,  in  this  series,  W.  F.  Willoughby,  Government 
Organization  in  War  Time  and  After. 

250 


CONTROL  OF  FOOD  AND  RAW  MATERIALS 

wasteful,  and  speculative  practices.  The  Fuel  Admin- 
istration had  charge  of  the  production,  distribution,  and 
conservation  of  fuel,  particularly  coal. 

The  War  Trade  Board  was  created  on  October  12, 
1917.     In  addition  to  certain  powers  over  enemies'  trade, 
it  was  given  power  to  regulate  the  exports  and  imports 
of  the  United  States.     The  Espionage  Act  approved  on 
June  15,  1917,  provided  that  upon  the  issuance  of  a 
proclamation  by  the  President  it  should  be  unlawful  to 
export  from  the  United  States  to  any  specified  country 
any  article  named  in  the  proclamation  except  under  such 
conditions  and  limitations  as  might  be  prescribed.     In 
carrying  out  this  law  the  War  Trade  Board  issued  or 
refused  licenses  for  exportation  of  articles  from  the 
United  States  and  thereby  exercised  an  effective  control 
over  all  outgoing  products.     The  War  Trade  Board  also 
administered   the   provisions   of   the   Trading-with-the- 
Enemy  Act  approved  on  October  6,  1917,  which  made  it 
unlawful  to  import  into  the  United  States  any  articles 
mentioned  in  a  Presidential  proclamation  except  under 
such  conditions  as  might  be  specified.     Under  this  pro- 
vision a  licensing  system  was  established  for  imports. 
The  War  Trade  Board  had,  therefore,  complete  control, 
through  its  system  of  licensing  and  its  conservation  lists, 
of  the  entire  trade  of  the  United  States.^ 

The  War  Industries  Board  exercised  control  over 
production  within  the  United  States  by  regulating  the 
distribution  of  raw  materials,  by  determining  those 
products  which  were  essential,  by  assisting  the  Presi- 
dent in  conjunction  with  the  Federal  Trade  Commission 
in  fixing  the  price  of  basic  products,  by  exercising  prior- 
ity control  including  transportation,  and  by  assisting  in 

6  For  a  detailed  description  of  its  operations  see,  in  this  series, 
Louis  E.  Van  Norman,  War  Time  Control  of  Commerce. 

251 


COMMERCIAL  POLICY 

buying  for  the  Allies.  In  short,  this  Board  had  charge 
of  the  control  and  allocation  of  the  principal  raw  ma- 
terials and  of  economizing,  standardizing,  curtailing,  or 
stimulating  production  in  such  a  way  as  to  accomplish 
the  purposes  of  the  war. 

Control  over  materials  was  exercised  in  still  another 
way.  The  Shipping  Control  Committee  was  established 
by  the  Shipping  Board  and  the  War  Department  on 
February  11,  1918.  It  acted  as  the  agent  of  the  Ship- 
ping  Board  in  allocating  the  vessels  owned  or  controlled 
by  it  to  cargoes  and  trade  routes  in  order  that  the  avail- 
able tonnage  might  be  used  to  its  maximum  efficiency  in 
the  most  essential  trades.  It  also  acted  as  an  agent  of 
the  War  Department  in  operating  the  fleet  of  cargo 
steamers  engaged  in  transporting  military  materials  to 
the  American  army  abroad. 

The  organization  adopted  by  other  belligerent  nations 
for  controlling  raw  materials  need  not  be  reviewed  here 
in  detail.  Most  of  the  methods  adopted  by  the  United 
States  were  in  operation  in  other  countries  before  we 
entered  the  war.  The  other  belligerents  had,  in  addi- 
tion to  restrictions  on  production  and  distribution  within 
their  own  borders,  their  conservation  lists,  which  came 
to  include  all  important  commodities,  and  they  issued 
licenses  regulating  exports  and  imports. 

A  few  examples  of  the  effect  of  these  national  controls 
may  be  mentioned.  The  War  Trade  Board  of  the  United 
States  entered  into  a  number  of  special  trade  agreements, 
particularly  with  neutral  nations  relating  to  their  ration-' 
ing  and  to  the  products  which  they  were  to  supply  the 
United  States.  American  authorities  practically  de- 
termined the  amount  of  steel  which  should  be  allotted 
to  Japan.  Steel  was  supplied  to  Japan  only  on  stipu- 
lated conditions,  namely,  that  the  Japanese  should  fur- 

252 


CONTROL  OF  FOOD  AND  RAW  MATERIALS 


nish  America  with  merchant  ships.      Similarly,  Great 
Britain  permitted  the  export  of  palm  kernels  only  upon 
condition  that  a  specified  amount  of  glycerine  should  be 
supplied  to  her.      Wool,  coal,  and  other  commodities 
were  apportioned  to  various  countries.      Ships  were 
secured  to  haul  the  coal  to  Brazil  in  order  that  Brazilian 
manganese,  sorely  needed  in  the  United  States,  might  be 
transported  to  the  coast.     In  certain  cases  Governments 
commandeered  the  supplies  of  needed  articles  within 
their  dominions.     The  wheat  and  butter  of  Canada,  the 
wool  and  meat  of  Australia,  the  palm  kernels  of  Africa, 
the  tungsten  of  Burma,  the  cotton  of  Egypt,  all  these 
were  requisitioned  by  the  British  Government  acting  in 
cooperation  with  the  colonial  Governments.      Steel  was 
the   most   important   of   a   number   of   articles   which 
were  taken  over  by  the  American  Government.      The 
British  Government  requisitioned  the  insulated  space  on 
its  vessels,  insuring  that  the  destination  of  frozen  meats 
and  other  articles  requiring  refrigeration  should  be  con- 
trolled by  the  Government.    The  United  States  and  Great 
Britain  used  their  control  of  bunker-coal  supplies  and 
coaling  facilities  to  direct  the  movement  of  vessels  of 
the  world  in  accordance  with  their  own  interests.     They 
could  not  formally  prescribe  to  a  neutral  nation  that  its 
vessels  should  carry  a  specific  cargo  to  a  certain  port, 
but  they  could  accomplish  this  result  by  making  such  a 
voyage  the  condition  of  the  grant  of  coaling  privileges. 
In  Australia  a  metals  exchange  was  formed  to  dispose 
of  supplies,  of  which  only  British  subjects  could  be  mem- 
bers.    This  assured  that  such  control  as  that  exercised 
by  Germany  before  the  war  over  the  Australian  tungsten 
and  zinc  would  be  impossible.     Similarly,  ownership  of 
rubber  lands  in  the  British  eastern  possessions  was  re- 
stricted to  British  subjects.     Syndicates  were  formed, 

253 


I 


COMMERCIAL  POLICY 

such  as  the  Nitrates  Syndicate  in  London,  with  official 
sanction,  to  get  control  of  certain  key  materials  and  to 
operate  the  industries. 

Early  in  the  war  it  became  clear  in  Europe  that 
national  control  of  food  and  materials  was  not  adequate. 
The  submarine  campaign,  the  shortage  of  shipping, 
threatened  famine,  and  the  need  of  essential  raw  ma- 
terials in  industry  —  each  worked  toward  united  action 
in  economic  matters.  The  Allies  found  themselves  com- 
peting against  each  other  in  neutral  markets  and  joint 
purchases  became  imperative. 

The  first  organization  for  joint  action  was  the  Com- 
mission Internationale  de  Ravitaillement  established  on 
August  13,  1914.     Says  the  Round  Table:' 

This  body,  true  to  the  ideas  which  were  in  vogue  in  the 
earlier  stages  of  the  war,  was  not  a  joint  executive.     It  was 
simply  a  department  of  the  British  Government  actin-  as  an 
agent  for  all  the  Allies  in  all  matters  relating  to  the  purchase 
of  supplies  in  the  United  Kingdom.     For  this  purpose  it  had 
attached  to  it  delegations  from  each  of  the  Allies.     It  collected 
and  coordinated  the  demands  of  all  the  Allies  transmitted  to 
it  through  these  delegations,  and  it  ascertained  from  the  execu- 
tive departments  of  the  British  Government  how  far  these 
demands  could  be  met.     It  was  thus  not  itself  an  executive  de- 
partment.     The  actual  placing  or  approval  of  contracts  for 
the  Allies  in  the  United  Kingdom  remained  in  the  hands  of 
such  executive  departments  as  the  Ministry  of  Munitions  and 
the  War  Office.     As  time  went  on  its  functions  as  a  coordinat- 
ing agency  were'm  a  measure  extended  to  include  the  whole 
British  Empire  and  even,  in  certain  cases,  neutral  countries, 
but  It  has  remained  a  consultative  body  — a  general  clearing- 
house   of    information  —  without    any    very    closely    defined 
sphere  of  action  or  authority. 

The   entrance   of   the   United    States   into   the   war 

^  ^ound  Tabic  (London),  September,  1918,  p.  669.  ' 

254 


CONTROL  OP  FOOD  AND  RAW  MATERIALS 


brought  a  stimulus  to  the  growth  of  international  execu- 
tive control,  and  at  the  time  of  the  signing  of  the  armis- 
tice joint  action  among  the  Allies  was  well  advanced. 
The  ultimate  decisions  continued  to  remain  in  the  Gov- 
ernments of  the  Allies,  but  the  organizations  developed 
had  become  truly  joint  executives.  The  shortage  of 
shipping  made  the  Allied  Maritime  Transport  Council 
the  most  important  of  the  international  bodies.  Men, 
munitions,  food,  raw  materials  —  none  of  these  could 
move  without  ships.  Hence  shipping  became,  as  it  were, 
the  **neck  of  the  bottle,"  and  the  allocation  of  shipping 
space  to  the  various  needs  of  the  Allies  became  a  task  of 
supreme  and  vital  importance. 

The  Allied  Maritime  Transport  Council^  consisted  of 
two  representatives  of  the  four  important  Allies,  France, 
Italy,  Great  Britain,  and  the  United  States.  Its  primary 
object  was  to  secure  the  most  effective  use  of  tonnage. 
The  Council  obtained  a  statement  of  the  programmes 
of  the  import  requirements  for  each  of  the  main  classes 
of  essential  imports  and  a  full  statement  of  the  tonnage 
available  to  the  different  Governments.  In  addition  to 
the  purely  naval  and  military  demands  upon  tonnage, 
the  chief  needs  for  which  tonnage  had  to  be  supplied 
were  (1)  food,  (2)  munitions,  and  (3)  raw  materials, 
and  in  carrying  out  the  task  of  allocating  shipping  to 
these  various  needs  the  Council  had  the  assistance  of 
other  important  inter-allied  bodies. 

The  Inter- Allied  Food  Council  coordinated  the  work 
of  the  Programme  Committees  for  cereals,  oil  seeds, 
sugar,  and  meat  and  fats.  Concerning  the  work  of  this 
organization,  the  British  Board  of  Trade  Joiirnal  says  :^ 

The  establishment  of  the  Committee  has  had  the  effect  of 

»  British  Board  of  Trade  Journal,  December  19,  1918,  p.  773. 
9  Decem})er  19,  1918. 

255 


COMMERCIAL  POLICY 

eliminating  competition  in  purchase  and  transport.  It  co- 
ordinates the  various  programmes,  according  to  the  needs  and 
resources  of  the  countries  individually  and  collectively,  and 
according  to  the  available  tonnage  and  finance.  By  means  of 
a  Freight  Committee  arrangements  are  made  for  the  ship- 
ments of  food  to  Europe,  and  movements  of  shipping  are 
closely  watched.  The  Freight  Committee  works  in  close  touch 
with  the  Allied  Maritime  Transport  Council  and  the  Ministry 
of  Shipping. 

It  will  be  easily  understood  that  the  existence  of  this  Inter- 
Alhed  organization  has  been  of  great  advantage.  Not  only 
does  it  secure  that  each  country  receives  its  proper  share  of 
the  imports,  but  it  renders  it  possible  to  deal  without  friction 
or  delay  with  sudden  emergencies  necessitating  further  sup- 
plies of  particular  foodstuffs. 

Although  chiefly  concerned  with  the  four  Allied  countries, 
the  Inter-AUied  Food  Council  provides  for  the  needs  of  the 
other  countries  on  the  side  of  the  Entente,  such  as  Greece  and 
Portugal,  and  arranges  for  the  authorized  shipments  to 
neutrals. 

Recently  further  obligations  have  fallen  on  the  Food  Council 
and  the  Committee  of  Representatives  in  respect  of  the  terri- 
tories recovered  from  the  invaders,  e.  g.,  Northern  France, 
Belgium,  Serbia,  part  of  Italy,  etc.,  and  they  are  now  con- 
sidering the  question  of  supplying  food  to  the  enemy  countries 
At  present  the  problem  before  the  Allies  is  one  of  feedin^^ 
practically  the  whole  of  Europe.  ^ 

The  Inter-Allied  Munition  Council  was  also  estab- 
lished to  coordinate  the  work  of  the  executives  or  Pro- 
gramme Committees  for  nitrates,  chemicals,  explosives, 
non-ferrous  metals,  mechanical  transport,  and  steel' 
This  Council  cooperated  with  the  Allied  Maritime  Trans- 
port Council  in  the  matter  of  the  allocation  of  tonnage 
for  the  transportation  of  munitions. 

In  addition  to  these  inter-Allied  bodies  numerous 
mter-Allied  programme  committees  were  established, 
dealing   with    the    following    products:    wool;    cotton;' 

256 


CONTROL  OP  FOOD  AND  RAW  MATERIALS 

hides;  leather  and  tanning  materials;  tobacco  and 
matches ;  paper ;  timber ;  petroleum ;  flax,  jute  and  hemp ; 
and  coal  and  coke.  These  programme  committees  han- 
dled the  inter-Allied  needs  of  the  important  raw  ma- 
terials, and  undertook  to  see  that  the  industries  were 
supplied  in  so  far  as  they  were  related  to  the  essential 
war  needs. 

What  permanent  effect,  if  any,  will  these  war-time 
experiences  in  the  control  of  food  and  raw  materials 
have  upon  the  commercial  policy  of  nations?      It  may 
safely  be  said  that  the  entire  machinery  of  control  will 
not  be  abandoned,  in  spite  of  the  advocacy  of  this  policy 
in  some  quarters;  there  will  not  be  a  reversion  to  the 
condition  that  existed  before  the  war.     Nor,  on  the  other 
hand,  will  the  elaborate  machinery  of  control  developed 
under  the  stress  of  war  be  permanently  retained.     For 
normal  peace  time  it  is  neither  necessary  nor  desirable. 
According  to  peace  standards  many  of  the  attempts  at 
Government   regulation   were   failures.       They  accom- 
plished, it  is  true,  their  purpose  during  the  war,  when 
peoples  were  willing  to  pay  the  cost.      Under  normal 
conditions,  however,  results  must  be  balanced  against 
outlay.     Many  forms  of  control  are  speedily  being  aban- 
doned, and  as  the  transition  period  draws  to  a  close 
others  will  cease. 

Nevertheless,  some  forms  of  control  or  regulation  will 
remain  and  be  important  factors  in  commercial  policy 
Even  before  the  war  the  absence  of  international  regula- 
tion  showed  its  evil  effects.  The  policy  of  nations  was 
at  times  directed  toward  getting  political  control  over 
areas  which  contained  raw  materials  essential  to  their 
industries.  The  desire  to  control  sources  of  raw  ma- 
terials was  a  factor  in  Germany's  policy  in  Turkey  and 

257 


COMMERCIAL  POLICY 

Morocco,  as  it  is  in  Japan's  policy  in  China.  Great 
Britain  has  made  many  efforts  to  develop  the  growth  of 
cotton  in  the  Empire  in  order  to  be  independent  of  the 
United  States  for  this  material.  In  the  world  as  it 
existed  prior  to  the  war,  the  absence  of  any  guarantees 
of  fair  treatment  or  the  open  door  encouraged  two 
tendencies.  In  the  first  place,  it  led  nations  to  endeavor 
to  control  by  financial  devices  the  raw  materials  pro- 
duced in  other  countries.  In  many  commodities  there 
was  no  natural  unimpeded  flow  from  one  region  to  an- 
other according  to  the  demand  existing  for  them.  De- 
liberate efforts  were  made  in  a  number  of  cases  to  con- 
trol the  movement  of  materials  in  the  interests  of  par- 
ticular nations.  Before  the  war  the  flow  of  copper  from 
the  United  States  to  Germany  was  determined  by  the 
action  of  the  powerful  buying  organization  of  that 
country,  which  withheld  its  orders  until  the  market  was 
depressed,  and  then  suddenly  bought  great  supplies 
while  others  were  unprepared,  at  prices  actually  less 
than  those  paid  by  American  consumers.  By  other  care- 
fully worked  out  schemes  the  Germans  secured  the  zinc 
and  tungsten  of  Australia  and  the  palm  kernels  of  the 
British  African  colonies.  Principally  through  the 
agency  of  her  vast  merchant  marine,  England  came  to 
control  the  world's  supplies  of  tin. 

In  the  second  place,  the  absence  of  international  regu- 
lation led  nations  to  seek  to  control  supplies  of  raw  ma- 
terials by  extending  their  political  domination  over 
** spheres  of  influence,"  protectorates,  and  colonies.  In 
the  anarchical  condition  of  the  pre-war  world  no  nation 
was  willing  to  submit  to  a  condition  which  made  it  pos- 
sible for  another  nation  to  shut  off  its  supply  of  a  raw 
material  and  destroy  the  industry  dependeirt  upon  it. 
It  is  futile  to  talk  of  disarmament  until  the  causes  for 

258 


CONTROL  OF  FOOD  AND  RAW  MATERIALS 

armaments  are  removed,  and  one  of  these  causes  is  the 
exclusive  control  by  some  nations  of  essential  raw 
materials  needed  by  others. 

War-time  experiences  have  revealed  in  action  many  of 
the  commercial  devices  which,  although  feared,  were  only 
potential  before  the  war.     If  the  policy  of  the  future 
were  to  be  trade  warfare,  we  have  familiarized  ourselves 
with,  and  devised  the  machinery  for  enforcing,  one  of 
the  most  fatal  of  commercial  weapons.     Let  us  look  for 
a  moment  at  some  of 'the  new  possibilities.     Measures 
which  before  the  war  were  occasional  were  pursued  dur- 
ing the  war  as  settled  policies.     War  restrictions  which 
were  put  in  force  even  against  neutrals,  regardless  of 
the  most-favored-nation  clause  of  commercial  treaties, 
and  export  embargoes  and  import  control  might  be  used 
as  permanent  measures  of  trade  regulation  with  far- 
reaching  effect.      Nearly  every  important  nation  pro- 
duces some  essential  commodity  in  sufficient  amount 
practically  to  dominate  its  market.     The  United  States, 
for  example,  is  in  this  position  with  respect  to  cotton 
and  copper.     Heretofore  it  has  been  our  policy  to  admit 
foreign  buyers  to  our  markets  on  the  same  terms  as 
those  which  apply  to  domestic  buyers.      We  have  not 
attempted  to  use  our  virtual  monopoly  of  these  com-    ' 
modities  as  a  bargaining  asset  or  for  political  or  economic 
purposes.     It  is  possible,  however,  that  this  policy  might 
change.      Great  Britain  has  already  requisitioned  the 
cotton  crop  of  Egypt  and  controls  the  wool  supply  in 
some  of  the  British  Dominions.     As  a  war  measure  the 
allotment  of  steel  to  Japan  by  the  United  States  was  the 
exercise    of    an    international    function.       Japan    was 
affected  by  this  action  scarcely  less  than  the  United 
States.      Few  measures  enacted  by  the  Japanese  Diet 

259 


\l 


m 


ifi4 


COMMERCIAL  POLICY 

have  had  a  more  vital  effect  on  Japanese  industries  than 
these  measures  adopted  by  American  authorities.  If 
such  control  were  to  continue  in  peace  time,  the  possible 
complications  can  readily  be  imagined.  Any  such  action, 
however,  would  involve  no  greater  assumption  of  au- 
thority than  that  practiced  by  Japan  under  her  monopo- 
listic control  of  camphor.  The  British  Government,  it 
is  stated,  has  levied  an  export  tax  on  palm  kernels  and 
certain  other  products  of  the  British  Empire  and  pro- 
vided for  the  remittance  of  the  tax  when  the  products  are 
purchased  by  a  producer  within  the  British  Empire. 
Such  a  policy  will  tend  to  injure  the  soap  and  chemical 
industries  in  other  countries,  particularly  Germany. 
Germany,  however,  is  scarcely  in  a  position  to  object  to 
this  action  because  of  her  selfish  monopoly  of  potash. 
These  cases  suggest  the  grave  danger  which  lies  along 
the  line  of  the  exclusive  national  control  of  such  essential 
commodities  as  American  cotton  and  copper,  British 
jute,  wool  and  palm  kernels,  Japanese  silk  and  camphor, 
German  potash,  and  Chilean  nitrates. 

One  of  the  motives  that  inspired  the  ambitious  plan 
of  Germany  to  establish  Mitt  el  Europa  was  to  obtain  con- 
trol of  raw  materials.  She  was  able  to  hold  out  as  long 
as  she  did  in  spite  of  the  blockade  because  of  the  re- 
sources of  the  territories  over  which  she  extended  her 
control.  Raw  materials  were  important  factors  in  the 
treaties  negotiated  at  B rest-Li tovsk.  In  the  resolutions 
adopted  at  Paris  in  June,  1916,^®  the  Allies  showed  their 
resolve  to  conserve  for  their  own  exclusive  use  their 
natural  resources  during  the  reconstruction  period. 
They  undertook  also  to  devise  means  to  facilitate  the 
exchange  of  their  raw  materials.  In  addition,  they  de- 
clared in  favor  of  the  necessary  step  to  render  them- 


10  Appendix  II. 


260 


CONTROL  OF  FOOD  AND  RAW  MATERIALS 

selves  permanently  independent  of  enemy  countries  so 
far  as  raw  materials  were  concerned.    ' 

Discriminations  in  the  distribution  of  raw  materials, 
unfair  manipulation  of  materials  to  the  competitive  ad- 
vantage of  a  nation  or  its  allies,  the  exclusive  control  of 
materials  in  areas  controlled  politically —- these  are 
causes  of  war.  They  may  involve  the  very  existence  of 
a  people.  In  such  matters  military  strength  may  for  a 
time  afford  one  group  of  nations  an  advantage,  but  in 
decades  or  centuries,  as  history  runs  its  course,  the  cycle 
comes  around  when  the  excluded  nations  decide  to  fight 
for  economic  equality. 

At  the  same  time  that  the  war  was  disclosing  to  us  the 
germs  of  trade  warfare  which  breed  in  the  control  of 
raw  materials,  it  pointed  the  way  to  avoid  difficulty  by 
demonstrating  that  collective  world  regulation  is  prac- 
ticable. The  inter-Allied  control  of  food,  munitions, 
raw  materials,  and  shipping  has  demonstrated  that 
nations  can  act  jointly  to  solve  a  common  problem  which 
no  one  alone  could  solve  adequately.  The  faith  of  men 
in  their  collective  effort  is  now  far  greater  than  before 
the  war.  The  world  today  is  face  to  face  with  a  choice, 
on  the  one  hand,  of  an  unregulated  struggle  between 
nations  for  raw  materials,  showing  itself  at  times  in 
shrewd  bargaining  or  again  in  trade  wars;  or,  on  the 
other  hand,  of  regulation  through  an  international  com- 
mission under  the  League  of  Nations.  The  elaborate 
controls  of  the  war  period  are  not  necessary,  but  there 
should  be  a  commission  —  perhaps  advisory  at  first  — 
which  would  assist  in  maintaining  equality  of  treatment 
and  the  open  door  in  the  distribution  of  essential  raw 
materials.  It  might  be  the  same  commission  that  deals 
with  discriminations  and  other  unfair  practices  in  com- 

261 


COMMERCIAL  POLICY 

merce  and  trade,  or  it  might  be  a  separate  commission. 
But  it  should  have  full  powers  of  investigation  and 
publicity,  and  aggrieved  parties  should  be  able  to  appeal 
to  it  for  a  consideration  of  their  complaints. 


m 


CHAPTEE  XIV 

INTERNATIONAL  TARIFF  POLICIES 

Heights  of  tariffs  primarily  for  domestic  determination  —  How 
far  they  may  be  the  subject  for  diplomatic  discussion  —  Trade 
wars  — Factors  determining  height  of  tariffs  of  dependent 
colonies  and  of  China  and  Siam  —  Discriminations  and  prefer- 
ences more  obviously  and  always  matters  of  international  con- 
cern —  Trade  war  between  Germany  and  Canada  —  American 
reciprocity  experiences  —  Preferences  within  the  British 
Empire. 

Nations  have  retained,  and  for  the  immediate  future 
at  least  will  continue  to  retain,  the  right  to  levy  a  rea- 
sonable tariff!  on  goods  they  import  from  abroad.  How 
high  or  how  low  the  tariff  duties  of  a  nation  should  be 
is  a  question  primarily  for  domestic  determination.  The 
need  of  a  government  for  revenue  or  of  the  people  for 
food  and  raw  materials  and  the  stage  of  industrial  de- 
velopment in  which  a  nation  may  find  itself  constitute 
the  determining  factors.  Even  in  the  case  of  bargaining 
tariffs^  these  factors  determine  the  effective  minimum 
rates. 

But  this  does  not  mean  that  the  height  of  a  tariff  may 
never  be  a  proper  subject  for  international  negotiations. 
Some  of  the  most  bitter  tariff  controversies  in  the  nine- 
teenth century  were  due,  not  to  discriminations,  but  to 
unnecessarily  high,  and  in  some  cases  prohibitive,  tariff 
rates.  The  European  attitude  toward  the  rates  of  the 
American  Dingley  tariff  of  1897  is  a  case  in  point.  Re- 
taliation was  seriously  considered,  but  was  not  put  into 
effect  because  of  America's  strong  position  with  refer- 


1  See  Chapter  VII. 

2  See  Chapter  X. 


263 


l\ 


COMMERCIAL  POLICY 

ence  to  food  and  raw  materials.  In  other  cases  trade 
wars  of  the  most  serious  character  resulted. 

In  1888  a  tariff  dispute  arose  between  France  and 
Italy.  Negotiations  failed  and  a  trade  war  followed. 
For  two  years  each  country  applied  retaliatory  duties 
against  the  other,  and  then  for  eight  years  further  each 
country  applied  its  maximum  duties  to  imports  from  the 
other.  Both  suffered  seriously.  By  the  end  of  the 
decade  Italian  exports  to  France  had  declined  57  per 
cent.,  and  French  exports  to  Italy  showed  a  decrease  of 
fully  50  per  cent. 

More  serious  was  the  trade  war  between  France  and 
Switzerland  in  the  early  '90 's.  This  was  of  two  and  a 
half  years'  duration.  France  applied  to  Swiss  goods 
her  maximum  rates,  which  were  approximately  40  per 
cent,  higher  than  her  minimum  rates.  Switzerland  in 
turn  applied  to  French  goods  punitive  duties  ranging 
upward  to  150  per  cent.  The  Swiss  also,  by  changes  in 
railway  rates,  assisted  in  diverting  their  Marseilles  busi- 
ness to  Genoa,  their  Havre  and  Dunkirk  trade  to  Ant- 
werp and  Rotterdam,  and  the  whole  of  their  trans- 
Atlantic  silk  trade  to  England  via  Belgium  and  Holland. 
In  addition  they  cancelled  their  literary  convention  with 
France,  which  meant  not  only  a  serious  financial  loss  to 
that  country,  but  the  diminishing  of  French  cultural  in- 
fluence to  the  advantage  of  German  thought  and  litera- 
ture. 

France's  losses  in  this  trade  war  were  heavy.  The 
diversion  of  Swiss  commerce  to  other  countries  lost  to 
her  millions  of  francs  in  railway  receipts,  ocean  freights, 
and  commissions.  Austria,  Italy,  and  the  United  States 
gained  at  her  expense  in  the  sugar  trade,  Spain  in  the 
wine  trade,  Italy  in  the  silk  trade,  Germany  and  Belgium 
in  metal  goods,  and  the  United  States  in  leather.     Ger- 

264 


INTERNATIONAL  TARIFF  POLICIES 

many  received  half  of  the  trade  lost  by  France  in  ready- 
made  clothing  and  one-third  of  that  lost  in  woolen  goods. 
Not  until  seven  years  after  the  close  of  the  trade  war 
did  French  exports  to  Switzerland  again  equal  the  ex- 
ports of  the  normal  years  before  the  trade  war. 

In  1893-4  Russia  and  Germany  engaged  in  a  brief  but 

costly  tariff  war.     Russia's  attitude  had  been  hostile  to 

German  commercial  interests.      In  1893  she  framed  a 

double  tariff,  the  minimum  rates  to  be  granted  in  return 

Germany  retaliated.      Russia  raised  her  tariff  rates 

still  higher  and  increased  twenty-fold  her  harbor  dues  on 

German  shipping.    Germany  was  quick  to  see  the  danger 

of  the  situation.     Her  industrial  interests  feared  the 

result  of  the  most-favored-nation  treatment  accorded  to 

French  goods   in   Russia.      Russia,   furthermore,   was 

able  to  avoid  much  of  the  force  of  the  German  rates  by 

shipping  her  grain  to  Austria-Hungary.     After  a  few 

months  of  this  warfare  an  agreement  was  reached,  but 

not  until  both  countries  had  suffered  serious  losses. 

Although  it  is  still  true  that  the  height  of  a  tariff  is  a 
subject  ultimately  not  for  international  but  for  national 
decision,  high  or  prohibitive  tariffs  (tariffs  which  more 
than  equalize  competitive  conditions  with  a  fair  margin) 
do  not  pay.  A  country  in  a  strong  economic  position 
might  maintain  a  very  high  tariff  and,  if  it  had  a  series 
of  most-favored-nation  treaties,  might  rely  on  the  bar- 
gaining of  other  countries  to  secure  for  it  modifications 
of  other  tariffs.  But  such  a  policy  cannot  be  pursued 
with  impunity.  It  leads  to  irritation  and  retaliation. 
Under  such  circumstances  even  the  height  of  a  tariff  may 
be  a  subject  of  negotiation  and  diplomatic  discussion. 

The  principle  that  tariffs  should  be  primarily  for 
domestic  determination  has  a  corollary  which  is  not  so 

265 


COMIVIERCIAL  POLICY 

readily  accepted.  Tariffs  of  dependent  colonies  and  of 
such  countries  as  China  and  Siam  should  also  be  made 
in  the  interests  of  the  peoples  directly  affected.  The 
revenue  and  the  industrial  needs  of  peoples  under  the 
tutelage  of  more  advanced  peoples  should  govern  primar- 
ily, as  in  the  case  of  independent  nations,  in  the  de- 
termination of  their  customs-tariff  policy.  This  course, 
however,  has  not  usually  been  followed.  Tariffs  of  de- 
pendent colonies  have  been  made  by  the  mother  country. 
China  and  Siam  have  had  practically  no  voice  in  the 
making  of  their  tariffs.  The  customs  duties  levied  in 
their  ports  were  fixed  for  them  in  treaties  concluded 
more  than  a  half-century  ago  between  the  leading  com- 
mercial nations  that  were  interested  in   Chinese  and 

Siamese  trade. 

It  is  obvious  at  a  glance  that  the  tariffs  of  most  of  the 
dependent  colonies  of  the  world  and  of  China  and 
Siam  are  made,  not  with  local  interests  primarily  in 
view,  but  in  behalf  of  nations  that  have  goods  to  export, 
in  the  case  of  China  and  Siam  there  are  those  who  be- 
lieve that  simple  justice  requires  that  they  be  granted 
tariff  autonomy.  If  this  does  not  seem  practicable  at 
the  present  time,  the  treaties  should  at  least  be  revised 
in  such  manner  that  the  revenue  and  economic  needs  of 
these  countries  shall  have  first  consideration.^  An  inter- 
national commission  is  now  revising  the  Chinese  tariff. 
In  the  framing  of  tariffs  for  dependent  colonies  the 
essential  needs  of  the  people,  perhaps  backward  eco- 
nomically, should  be  considered  before  the  commercial 
interests  of  the  home  country  that  has  goods  to  sell 

abroad. 

Low  tariffs  that  are  desired  by  the  exporting  interests 
of  commercial  countries  are  very  likely  to  be  most  de- 
sirable from  the  standpoint  of  the  peoples  of  dependent 

266 


INTERNATIONAL  TARIFF  POLICIES 

colonies  and  of  China  and  Siam ;  tariffs  chiefly  for  reve- 
nue are  most  in  line  with  these  countries'  needs.  But 
these  interests  do  not  always  coincide.  A  higher  tariff 
in  China  would  unquestionably  contribute  to  her  finan- 
cial and  political  independence.  India  also  furnishes 
an  interesting  case  in  point.  The  Lancashire  cotton 
manufacturers  have  always  opposed  a  tariff  on  cotton 
goods  imported  into  India.  Formerly  when  an  import 
duty  was  levied  on  cotton  goods  for  revenue  purposes, 
an  excise  tax  equal  to  the  import  duty  was  levied  on 
cotton  goods  produced  in  Indian  mills.  Thus  far  did 
the  British  Government  go  in  its  effort  to  eliminate  even 
the  suggestion  of  protection  from  India's  tariff.  Indian 
opinion  was  hostile  to  this  situation,  but  not  until  the 
war  was  there  a  change  in  the  direction  desired  by  local 
interests.  This  was  brought  about  by  the  increasing 
severity  of  Japanese  competition.  The  Indian  mills 
sought  some  protection  from  the  rapidly  mounting  im- 
ports from  Japan.  In  March, '1917,  the  duty  on  cotton 
goods  was  raised  from  31/^  per  cent,  to  71/^  per  cent, 
without  a  corresponding  increase  in  the  excise  tax. 

Tariffs  of  dependent  colonies,  then,  should  be  framed 
on  the  same  basis  as  those  of  independent  nations.  In 
both  cases  first  consideration  should  be  given  to  the 
fiscal  and  the  industrial  needs  of  the  people  directly 
affected. 

As  distinguished  from  the  height  of  tariffs,  prefer- 
ential and  discriminatory  rates  raise  a  different  ques- 
tion. These  are  more  obviously  and  always  matters  of 
international  concern.  "When  a  country  places  the 
products  of  one  people  on  a  more  favorable  tariff  basis 
than  the  products  of  another  people,  it  has  sown  the 
seed  of  international  illwill.      Plausible  arguments  in 

267 


COMMERCIAL  POLICY 

favor  of  reciprocal  arrangements  and  preferences  do 
not  alter  the  hard   fact  that  a  nation   discriminated 
against  by  another  has  a  grievance  which  it  may  nurse 
into  a  hatred.     In  a  world  where  economic  interests  are 
inseparably  interlocked,  he  is  on  the  defensive  who  holds 
that  inequalities  in  tariffs  are  not  subjects  for  inter- 
national discussion  —  perhaps  for  international  decision. 
Much  can  be  done  by  individual  nations  toward  estab- 
lishing equality  of  treatment.     Each  nation  has  a  duty 
not  only  to  grant  to  other  nations  equal  treatment,  but 
to   guard   itself   against   discriminations.      Bargaining 
tariffs  and  commercial  treaties  containing  the  uncon- 
ditional most-favored-nation  clause  are  useful  instru- 
ments to  this  end.^      But  when  nations  have  done  all 
that    they    can    individually,    there    still    remain    un- 
touched some  of  the  more  fundamental  and  irritating 
tariff    discriminations  — those    that    mere    bargaining 
between   nations   have   failed   to   remove.      These   in- 
clude special  reciprocity  treaties  between  nations  and 
preferential  tariffs  within  an  empire  justified  on  senti- 
mental,   political,    geographic,    or    economic    grounds. 
They  also  include  preferential  arrangements  between  the 
mother  country  and  dependent  colonies,  which  will  be 
considered  in  a  subsequent  chapter.     Even  those  coun- 
tries that  accept  the  unconditional  most-favored-nation 
clause  have  insisted  upon  their  right  to  make  special 
tariff   arrangements   that   discriminate   against   others. 
Ordinary  national  bargaining  systems  break  down  in 
these  cases  and  merely  add  to  the  causes  that  provoke 
trade  wars.    A  nation  prejudiced  by  a  preferential  tariff 
or  an  exclusive  reciprocity  treaty  is  confronted  with  the 
dilemma  of  submitting  to  the  discriminations  or  engag- 
ing in  a  trade  war.    An  example  will  illustrate  this  fact. 


% 


3  See  Chapter  X. 


268 


INTERNATIONAL  TARIFF  POLICIES 

In  1898,  when  Canada  granted  British  goods  a  special 
tariff  preference,  Germany  protested.  By  the  treaty  of 
1865  with  Great  Britain,  Germany  had  been  assured  as 
favorable  treatment  in  British  colonies  as  was  extended 
to  British  goods.  But  in  1897,  in  compliance  with  the 
repeated  requests  of  the  Dominions,  Great  Britain  de- 
nounced this  treaty.  After  preference  went  into  effect, 
Germany,  by  action  of  the  Bundesrat,  continued  to 
admit  British  products  at  the  rates  in  her  conventional 
tariff,  but  to  Canadian  goods  she  applied  her  maximum  • 
rates.  She  wished,  in  addition  to  gaining  the  specific 
advantage  of  lower  rates  in  Canadian  markets,  to  defeat 
this  important  step  toward  closer  political  and  economic 
organization  of  the  British  Empire.  After  several  years 
of  negotiation,  which  failed  to  secure  the  repeal  of  the 
German  penalization,  Canada  applied  a  surtax  on  Ger- 
man goods.  German  losses  in  the  trade  war  were 
greater  than  Canada's.  Her  exports  to  Canada  de- 
creased 50  per  cent,  and  her  goods  were  replaced  by 
English  and  American  goods.  Germany  evidently  con- 
cluded that  it  did  not  pay,  for  when  the  other  self- 
governing  Dominions  adopted  preference,  she  chose  to 
submit  to  the  discrimination.  In  1910  Canada  and 
Germany  reached  an  agreement  which  ended  the  tariff 
war  without  obtaining  for  Germany  the  preferential 
rates  or  even  most-favored-nation  treatment.  We  have, 
therefore,  reached  a  point  in  the  consideration  of  tariff 
discriminations  where  nations  acting  separately  or  bar- 
gaining in  the  ordinary  isolated  way,  two  by  two,  are  not 
able  to  solve  the  problem. 

American  experiences  with  bargaining  for  exclusive 
favors  throw  much  light  on  the  methods  employed  and 
the  futility  of  such  a  policy  from  a  national,  as  well  as  an 

269 


COMMERCIAL  POLICY 

international,  standpoint.  The  Tariff  Act  of  1890  con- 
tained a  provision  (Section  3)  intended  to  secure  for 
the  products  of  the  United  States  special  tariff  conces- 
sions in  certain  foreign  markets.  The  President  was 
given  power  to  proclaim,  without  reference  to  Congress, 
specified  penalty  duties  on  sugar,  molasses,  coffee,  tea, 
\  and  hides  imported  from  any  country  imposing  duties, 
or  other  exactions,  upon  the  products  of  the  United 
States,  which,  in  view  of  the  free  admission  into  the 
United  States  under  the  regular  tariff  of  sugar,  molasses, 
coffee,  tea,  and  hides,  he  deemed  to  be  ''reciprocally 
unequal  and  unreasonable."  Here  was  a  device  which 
gave  the  President  power  to  place  the  goods  of  one 
nation  on  a  less  favorable  basis  in  our  market  than  the 
goods  of  another  in  case  a  nation  should  refuse  to  grant 
to  the  United  States  special,  although  not  necessarily 
exclusive,  privileges  in  its  markets.  Under  this  law  the 
President  concluded  agreements  with  Brazil,  with  Spain 
for  Cuba  and  Porto  Rico,  with  the  Dominican  Republic, 
with  Salvador,  with  the  German  Empire,  with  Great 
Britain  for  the  West  Indies  colonies,  and  with  Nicaragua, 
Honduras,  Austria-Hungary,  and  Guatemala.  By  these 
agreements  the  United  States  secured  from  Germany 
and  Austria-Hungary  all  or  part  of  the  rates  of  their 
newly  established  conventional  schedules,  and  froiai  the 
Latin-American  republics  special  rates  which  were  not 
generally  granted  to  third  countries.  The  reduced 
rates  established  in  the  Spanish  and  the  British  West 
Indies  by  these  agreements,  however,  were  enjoyed  also 
by  the  mother  countries.  '  All  these  agreements  were 
terminated  by  the  Tariff  Act  of  August  27,  1894. 

The  United  States  Tariff  Act  of  1897  made  provision 
for  three  kinds  of  reciprocal  arrangements.  In  the 
second  part  of  Section  3  of  that  Act  is  found  a  provision 

270 


1 


h 


i 


<i 


INTERNATIONAL  TARIFF  POLICIES 

identical  in  principle  with  Section  3  of  the  Tariff  Act 
of  1890.  The  President  was  authorized,  without  refer- 
ence to  Congress,  to  negotiate  and  proclaim  treaties 
securing  to  the  United  States  special,  although  not 
necessarily  exclusive,  privileges  in  foreign  markets  and 
to  grant  in  return  the  continued  free  admission  from  the 
countries  with  which  the  treaties  were  made,  of  coffee, 
tea,  tonka  beans,  and  vanilla  beans.  These  products 
were  admitted  free  under  the  regular  tariff,  and  the 
penalty  duties  provided  were  to  be  used  by  the  President 
in  placing  any  country  from  which  the  specified  products 
came,  on  a  less  favorable  basis  than  other  nations,  in  case 
of  refusal  by  that  nation  to  grant  to  the  United  States 
special  favors  in  its  markets.  This  part  of  Section  3 
led  to  no  agreements,  but  it  was  a  factor  in  securing  for 
the  United  States  preferential  treatment  in  the  Brazilian 
market  in  1904. 

In  the  first  part  of  Section  3  of  the  Act  of  1897  is 
found  a  provision  for  negotiating  reciprocity  treaties  on 
a  different  principle.  The  President  was  authorized  in 
return  for  ''reciprocal  and  equivalent  concessions"  to 
grant  specified  reductions  from  the  duties  on  argols, 
brandies,  sparkling  and  still  wines,  and  paintings  and 
statuary.  Instead  of  using  penalty  duties,  the  principle 
is  here  introduced  of  making  special  reductions  in  the 
regular  tariff  rates  on  certain  articles  in  return  for 
reciprocal  reductions  in  the  tariff  rates  of  other  coun- 
tries. Agreements  under  this  provision  required  neither 
the  ratification  of  the  Senate  nor  the  approval  of  Con- 
gress. Agreements,  known  as  the  * '  Argol  Agreements, ' ' 
were  negotiated  and  proclaimed  with  France,  Portugal, 
Germany,  Italy,  Switzerland,  Spain,  Bulgaria,  the 
United  Kingdom,  and  The  Netherlands.  In  return  for 
its  concessions  the  United  States  received  reciprocal  con- 

271 


COMMERCIAL  POLICY 

cessions  in  each  of  these  agreements.  In  no  case,  how- 
ever, were  these  concessions  confined  to  the  United 
States.  In  most  cases  they  consisted  in  the  grant  to 
the  United  States,  either  for  the  first  time  or  in  renewal 
of  a  previous  grant,  of  all  or  part  of  the  rates  of  mini- 
mum or  conventional  schedules  already  enjoyed  by  all 
the  favored  nations.  In  several  cases,  however,  the 
agreements  secured  for  the  United  States  the  benefit  of 
conventional  rates  lower  than  those  that  had  previously 
been  eifective. 

The  third  reciprocity  provision  (Section  4)  in  the 
Tariff  Act  of  1897  differs  from  each  of  those  thus  far 
considered,  in  that  treaties  negotiated  under  it  had  to 
be  ratified  by  the  Senate  and  approved  by  Congress  be- 
fore they  became  effective.  Under  it  the  President  was 
authorized  to  negotiate  for  concessions  in  foreign 
markets  and  to  concede  in  return  a  reduction  in  the 
duties  of  the  Tariff  Act  of  not  more  than  20  per  centum 
of  those  duties,  or  to  transfer  to  or  agree  to  retain  on 
the  free  list  specified  articles  from  any  country  making 
satisfactory  concessions.  Treaties  known  as  the  *'Kas- 
son  Treaties'^  were  negotiated  with  France,  with  Great 
Britain  for  the  British  West  Indies,  with  Denmark  for 
St.  Croix,  with  the  Dominican  Republic,  Nicaragua, 
Ecuador,  and  the  Argentine  Republic.  These  treaties 
failed  of  ratification  in  the  Senate  and,  therefore,  never 
became  effective. 

When  the  Tariff  Act  of  1909  was  under  consideration. 
Congress  apparently  decided  that  the  bargaining 
methods  of  the  Tariff  Acts  of  1890  and  1897  were  not 
in  line  with  sound  policy.  It  did  not  reenact  any  of 
them.  It  abandoned  them,  not  only  in  form  but  in 
principle.  The  bargaining  section  of  the  Tariff  Act  of 
1909  does  not  seek  to  exact  special  privileges,  but  merely 

272 


m 


INTERNATIONAL  TARIFF  POLICIES 

endeavors  to  bring  about  the  equality  of  treatment  of 
Americans  and  American  products  in  foreign  markets.* 

None  of  the  treaties  negotiated  under  the  Tariff  Acts 
of  1890  and  1897  is  now  in  force.  The  sole  surviving 
remnant  is  our  preferential  arrangement  with  Brazil, 
which  is  not  a  formal  agreement  at  all.  Section  3  of  the 
Tariff  Act  of  1897  provided,  it  will  be  recalled,  for  a 
penalty  duty  of  three  cents  per  pound  on  coffee.  Brazil 
was  particularly  dependent  upon  the  United  States  as 
a  market  for  her  coffee.  The  same  was  true  of  her 
rubber.  In  1904  our  State  Department  suggested  to 
Brazil  that  unless  preferences  were  accorded  to  certain 
American  products  in  Brazilian  markets,  the  penalty 
duty  on  coffee  would  be  proclaimed  against  her  and  steps 
would  also  be  taken  to  impose  a  duty  on  rubber,  which 
at  that  time  was  on  the  free  list. 

Wheat  flour  was  the  leading  product  upon  which  the 
American  Government  requested  a  preferential  rate. 
Negotiations  finally  resulted  in  a  preference  being 
granted  to  the  United  States  in  1904  on  wheat  flour  and 
on  a  few  other  products.  Under  the  Brazilian  law  it 
was  necessary  for  this  preference  to  be  renewed  each 
year.  It  failed  of  renewal  in  1905,  but,  with  a  few 
changes  in  the  articles  affected,  it  has  been  reenacted  in 
the  annual  Brazilian  budget  each  year  since  that  time. 
The  only  preferential  rate  of  substantial  importance 
is  the  reduction  of  30  per  cent,  in  the  duty  on  wheat 
flour. 

The  only  formal  reciprocity  treaty  now  in  force  to 
which  the  United  States  is  a  party  is  with  Cuba.  It 
was  ratified  in  1902.  Political  rather  than  economic 
factors  led  to  the  negotiation  of  this  agreement.  Under 
it    American    goods    receive    a    preference    in    Cuban 


See  Chapter 


^v. 


273 


m^^ 


COMMERCIAL  POLICY 

markets,  and  Cuban  products,  the  most  important  of 
which  is  sugar,  receive  a  preference  in  American  markets. 

Preferential  tariffs  within  the  British  Empire,  already 
alluded  to  in  the  case  of  Canada,  should  be  considered 
in  any  discussion  of  international  tariff  policies. 
Australia  grants  preferences  to  two  political  divisions  of 
the  British  Empire,  the  United  Kingdom  and  the  Union 
of  South  Africa.  In  the  case  of  the  United  Kingdom 
she  grants  a  preference  on  a  majority  of  the  items  in  the 
tariff.  Generally  speaking,  the  preferential  rate  is  five 
per  cent  ad  valorem  below  the  general  tariff.  Machine 
tools,  however,  receive  a  10  per  cent,  ad  valorem  prefer- 
ence and  cutlery  a  20  per  cent,  ad  valorem  preference. 
The  basis  for  the  preference  granted  to  the  South 
African  Customs  Union  is  the  general  tariff  of  1908. 
This  means  a  substantial  preference,  for  the  Australian 
Tariff  Act  of  1914  raised  the  average  rate  on  dutiable 
goods  from  17.62  per  cent,  to  32.26  per  cent. 

The  preferential  tariff  of  New  Zealand  is  unique  in 
two  respects.  In  the  first  place,  the  preferential 
schedule  is  the  general  tariff,  and  all  goods  from  outside 
the  British  Empire  pay  a  surtax  in  addition  thereto. 
In  the  second  place,  the  statute  provided  that  the  pref- 
erential schedule  should  be  applicable  to  goods  from  the 
United  Kingdom  and  from  any  part  of  the  British 
Empire,  and  that  special  reciprocity  agreements  with 
other  parts  of  the  Empire,  making  reductions  of  duty 
below  the  rates  of  the  preferential  schedule,  must  be 
ratified  by  the  New  Zealand  Parliament.  The  only 
special  agreement  that  exists  is  that  with  the  South 
African  Customs  Union.  As  a  result  of  these  provisions 
certain  goods  from  any  part  of  the  British  Empire  are 
subject  to  the  general  tariff  schedule ;  a  specified  list  of 

274 


INTERNATIONAL  TARIFF  POLICIES 

goods  from  South  Africa,  including  feathers,  fish,  maize, 
sugar,  tobacco,  tea,  wine  and  spirits  are  admitted  at 
rates  substantially  below  the  rates  of  the  general  tariff ; 
and  certain  goods  imported  from  other  parts  of  the 
world  pay  a  surtax  varying  from  10  to  100  per  cent. 
ad  valorem  above  the  rate  on  which  British  goods  are 
admitted. 

In  the  case  of  the  South  African  Customs  Union,  the 
regular  schedule  applies  to  foreign  goods  and  the  pref- 
erential schedule  to  goods  from  the  United  Kingdom  and 
from  reciprocating  British  Dominions.  The  Dominions 
that  have  taken  advantage  of  this  reciprocal  provision 
are  Australia,  New  Zealand,  and  Canada.  The  prefer- 
ence granted  to  English  goods  and  those  of  the  recipro- 
cating Dominions  averages  only  about  three  per  cent,  ad 
valorem,  but  it  is  applied  to  a  wide  range  of  imports, 
approximately  82  per  cent,  of  the  total. 

Canada  provides  three  schedules  on  imports.  The 
lowest  rates,  giving  a  preference  of  about  one-third  of 
the  duties  in  her  general  tariff,  apply  to  the  whole  of  the 
British  Empire  except  Newfoundland,  Australia,  Gibral- 
tar, Cyprus,  Hongkong,  and  Malta.  The  second 
schedule  contains  the  intermediate  tariff  with  rates  from 
2y2  to  five  per  cent,  ad  valorem  lower  than  the  rates  of 
the  general  tariff.  It  has  not  been  extended  in  its 
entirety  to  the  products  of  any  country.  A  large  num- 
ber of  products  of  France  and  Italy  have  received  the 
benefits  of  these  lower  rates  by  virtue  of  reciprocal 
agreements,  and  Belgium  and  Holland  because  of  the 
liberal  character  of  their  tariffs  have  also  been  granted 
voluntarily  the  benefits  of  certain  rates  in  the  inter- 
mediate tariff.  Canada  has  also  extended,  in  conformity 
with  the  stipulations  of  most-favored-nation  treaties,  the 
benefits  of  the  intermediate  tariff  on  certain  products  to 

275 


COMMERCIAL  POLICY 

Argentina,  DenmarK,  Japan,  Norway,  Spain,  Sweden, 
Switzerland,  Venezuela,  and  several  other  countries. 

By  a  reciprocal  agreement  negotiated  with  Canada  in 
1912,  which  came  into  effect  in  1913,  all  the  British  West 
Indian  colonies,  except  Bermuda,  Jamaica,  and  the 
Bahamas,  give  a  preference  of  20  per  cent,  of  their  gen- 
eral rates  on  a  long  list  of  Canadian  products.  This 
preference  is  also  extended  to  the  products  of  Great 
Britain  and  Newfoundland.  In  return  Canada  grants 
to  these  colonies  a  preference  of  at  least  20  per  cent,  of 
the  lowest  rates  imposed  on  imports  from  foreign  coun- 
tries on  all  the  important  products  of  the  West  Indies. 
This  agreement  is  to  continue  in  effect  until  1923. 

Great  Britain,  it  should  be  said  in  justice  to  her,  has 
never  urged  or  even  encouraged  the  establishment  of 
preferences  in  her  favor.  A  minority  in  Great  Britain 
has  favored  an  extension  of  preference,  and  some  resolu- 
tions have  been  adopted  declaring  for  it.  For  example, 
on  February  2,  1917,  a  resolution  was  adopted  by  the 
Committee  on  Commercial  and  Industrial  Policy  of  the 
House  of  Commons,  a  part  of  which  is  as  follows:  **We 
therefore  recommend  that  H.  M.  Government  should  now 
declare  their  adherence  to  the  principle  that  preference 
should  be  accorded  to  the  products  and  manufactures  of 
the  British  Overseas  Dominions  in  respect  of  any 
Customs  Duties  now  or  hereafter  to  be  imposed  on  im- 
ports into  the  United  Kingdom."  There  is  no  evidence 
that  the  electorate  of  Great  Britain  will  favor  this  policy. 
It  will  not,  for  the  present  at  least,  favor  levying  import 
duties  on  foods  and  raw  materials,  and  it  is  precisely  on 
these  that  preferences  would  be  most  welcome  in  the 
Dominions.  It  is  significant,  however,  that  the  import 
restrictions  imposed  by  Great  Britain  as  measures  of 
reconstruction  are  not  applicable  to  goods  coming  from 

276 


INTERNATIONAL  TARIFF  POLICIES 

other  parts  of  the  Empire.  The  British  authorities  have 
removed  all  restrictions  on  importations  into  the  United 
Kingdom  that  are  exported  from  and  are  the  product  or 
manufacture  of  the  British  Dominions,  except  in  a  few 
cases.     Australia  has  partially  adopted  a  similar  policy. 

Tariff  policies  are  deeply  rooted  in  the  sentiments  and 
traditions  of  nations.      In  some  cases  they  are  vitally 
connected  with  their  economic  welfare.      They  cannot, 
therefore,  be  decided  without  a  careful  consideration  of 
all  the  factors  in  the  case.     But  one  of  the  factors,  a 
factor  made  more  important  by  the  war  and  the  con- 
ditions out  of  which  it  sprang,  is  the  necessity  for  in- 
creasing goodwill  and  harmony  among  peoples.     World, 
as  well  as  national,  interests  demand  consideration.     It 
may  not  be   expedient   for  nations   to   retain  all   the 
economic  advantages  they  possess  by  reason  of  their 
immediate  position.      Tariff   discriminations  not   only 
accentuate  the  differences  among  nations,  but  may  react 
disastrously  on  their  makers.     A  time  has  come  when 
peoples  must  consider  what  they  can  surrender  in  the 
interests  of  better  world  conditions,  but  before  the  prin- 
ciples of  adjustment  are  considered,  attention  must  be 
directed  to  another  field  in  which  preferential  tariff 
arrangements  have  flourished. 


CHAPTER  XV 

a 

THE  OPEN  DOOR  AND  COLONIAL  TARIFFS 

"Open  door*'  defined  —  The  "closed  door'*  in  the  old  colonial 
system  —  Eeturn  of  struggle  for  colonies  in  the  nineteenth 
century  —  Agreements  relating  to  the  open  door  —  Berlin 
Conference,  1884-5  —  Algeciras  Conference,  1906  —  Open  door 
in  China  —  Ingenious  ways  of  closing  the  *  *  door  * '  —  Colonial 
tariffs  —  The  Netherlands  —  British  dependent  colonies  — 
Spain  —  Germany  —  Italy  —  France  —  The  Philippines  — 
Colonies  should  not  be  instruments  of  commercial  policy. 

The  principle  of  the  open  door  does  not  imply  free 
trade  or  even  low  or  revenue  tariffs.  It  implies  actual 
equality  and  uniformity  of  treatment  in  import  and  ex- 
port duties,  harbor  dues,  customs  regulations,  distribu- 
tion of  raw  materials,  and  opportunities  for  investments 
or  concessions.  It  may  be  made  applicable  in  any  de- 
pendent colony  or  even  in  a  country,  such  as  China  or 
Persia,  where  outside  Governments  are  backing  the  com- 
mercial and  financial  interests  of  their  nationals  in  their 
competition  for  trade,  investment,  or  concessions. 

The  old  colonial  system  of  the  sixteenth  and  seven- 
teenth centuries  was  based  on  monopoly,  exclusion,  and 
the  *' closed  door.'*  Colonies  were  conceived  to  exist 
solely  for  the  benefit  of  the  mother  country.  Mercan- 
tilist statesmen  looked  upon  them  as  a  means  of  enrich- 
ing the  nation.  The  mining  of  the  precious  metals  was 
encouraged.  Navigation  laws  made  colonial  shipping  a 
national  monopoly.  Colonies  were  required  to  sell  their 
produce  to,  and  to  purchase  their  supplies  from,  the 
mother  country.  Trade  and  colonial  rivalries  developed 
into  wars.  The  British  fought  successfully  in  turn  the 
Spanish,    the   Dutch,    and   the   French,   and    laid   the 

278 


OPEN  DOOR  AND  COLONIAL  TARIFFS 


foundations  of  a  great  empire.  It  was  an  age  full  of 
heroic  achievements  but  ruled  by  ideals  of  combat  and 
dominance  —  ideals  which  can  find  no  place  in  any  just 
plan  of  world  affairs. 

The  latter  part  of  the  nineteenth  century  witnessed  a 
revival  of  colonial  policy  as  epochal  in  its  importance  as 
the  old  colonialism.  It  came  as  one  of  the  results  of  the 
later  phases  of  the  industrial  revolution.  Mechanical 
invention  and  business  organization  increased  produc- 
tion, goods  were  exported  to  foreign  markets,  capital 
accumulated  and  sought  investment.  Colonies,  pro- 
tectorates, and  spheres  of  influence  became  desirable. 
Politics  began  to  interest  itself  in  the  commercial  and 
financial  conditions  of  distant  countries.^ 

When  this  revival  of  colonial  interest  began.  Great 
Britain  discovered  that  she  had  under  her  flag  some  of 
the  most  desirable  parts  of  the  earth's  surface.    France, 
however,   retained   only  a  shadow   of  her  seventeenth 
century  empire.      The  colonies  which  the  Dutch,  the 
Portuguese,  and  the  Spanish  still  held  were  but  remnants 
of  their  former  domains.     But  there  were  large  portions 
of  the  world  uncontrolled  by  any  great  power.     South 
America  was  closed  to  European  political  interference 
or  control  by  the  Monroe  Doctrine.     Africa  offered  the 
greatest  opportunities  for  colonial  expansion,  and  its 
partition    became    a    great    colonial    problem.       Great 
Britain  and  France,  chiefly  by  pushing  inland  from  their 
footholds  on  the  coast,  obtained  more  than  one-half  of 
the  entire  continent.     France's  share  of  the  Dark  Con- 
tinent, approximately  4,000,000  square  miles,  was  largely 
acquired  after  1885.     Leopold  of  Belgium  acquired  ap- 
proximately 900,000  square  miles ;  Italy,  600,000 ;  Ger- 
many, 900,000.     The  Portuguese  took  a  renewed  interest 


Cf.  Chapter  I. 


279 


\ 


COMMERCIAL  POLICY 

in  holdings  and  claims  neglected  for  years.  Spain's 
acquisitions  were  insignificant  compared  with  other 
powers.  Nor  did  the  islands  of  the  sea  or  Asia  escape 
the  colonizing  fervor.  Oceania  was  taken  over,  and  the 
integrity  of  China,  Persia,  and  other  Asiatic  countries 
threatened. 


The  Berlin  Conference  of  1884-5  met  for  the  purpose 
of  adjusting  the  rivalries  of  nations  in  the  Congo  Basin. 
Its  significance  in  this  discussion  is  that  it  emphasized 
the  importance  of  the  open  door  in  international  rela- 
tions.    By  establishing  this  principle  for  Central  Africa, 
It  reduced  the  hostility  with  which  various  nations  were 
regarding   proposed   acquisitions   by   others,   and   thus 
facilitated  that  peaceful  settlement  of  territorial  claims 
which  was  going  on  outside  the  formal  sessions  of  the 
Conference.     France  and  Portugal  had  been  competitors 
m  the  Congo,  and  the  African  International  Association 
had  at  the  same  time  tried  to  establish  an  independent 
dominion.      Fearing  the   encroachment  of  her  rivals, 
Portugal  sought  British  support,  and  negotiated  a  treaty 
which  recognized  Portuguese  possession  of  the  mouth  of 
the  Congo  and  promised  the  open  door  in  the  colony. 
Lord  Granville  reminded  the  Portuguese  that  England's 
recognition    of    her    territorial    claims    was    worthless 
unless  other  powers  would  follow.      This  treaty  was 
opposed  by  the  other  nations,  the  opposition  being  led 
by  their  merchants,  who  distrusted  or  misunderstood  the 
Portuguese  promises.    After  it  was  abandoned,  Bismarck 
called  the  Berlin  Conference  together  in  the  hope  that 
a  settlement  might  be  reached  with  reference  to  the 
whole  Central  African  question.      In  opening  the  first 
session  Bismarck  said:    ''The  fundamental  idea  of  this 
programme  is  to  facilitate  the  access  of  all  commercial 

280 


OPEN  DOOR  AND  COLONIAL  TARIFFS 


nations  to  the  interior  of  Africa."  There  was  a  general 
acceptance  at  this  international  assembly  of  the  propo- 
sition that  a  free  zone  should  be  established  and  the 
greater  part  of  the  discussion  related  to  the  delimitation 
and  the  neutralization  of  the  territory  affected.  The 
principles  established  were  that  trade  should  be  free  to 
all  nations  in  the  Basin  of  the  Congo,  including  certain 
territory  east  and  west  to  the  Indian  and  Atlantic 
Oceans,^  with  free  access  to  ports  and  to  the  Congo  and 
its  affluents;  that  navigation  fees,  equal  for  all,  should 
be  allowed  only  to  cover  costs  of  improvements;  that 
''import  duties"  should  be  prohibited;^  that  no  com- 
mercial monopoly  or  privilege  should  be  granted;  that 
foreigners  should  in  all  cases  enjoy  the  same  rights  in 
the  region  as  did  citizens  of  the  sovereign  power;  and 
that  the  execution  of  certain  of  these  provisions  should 
be  in  the  hands  of  an  international  commission.  This 
commission,  however,  was  never  appointed,  and  the  ad- 
ministration was  left  in  the  hands  of  the  states  holding 
territory  in  the  zone. 

Passing  over  a  number  of  treaties  between  two  or  three 
nations  relating  to  the  open  door,  the  most  important  of 
which  is  the  one  between  France  and  Great  Britain  in 
1S98,  applying  for  30  years  the  open-door  policy  to  some 
one  million  additional  square  miles  of  African  territory, 
we  come  to  the  Algeciras  Conference  of  1906,  in  which 
again  the  leading  European  powers  considered  the  ques- 
tion of  commercial  equality,  this  time  with  reference  to 
Morocco.  A  uniform  maximum  import  duty  of  121/^  per 
cent.,  applicable  to  the  goods  of  all  nations,  was  agreed 

2  The  territory  to  the  west  was  a  comparatively  narrow  strip, 
whereas  on  the  Indian  Ocean  the  free-trade  zone  reaches  its 
greatest  extent,  north  and  south. 

3  In  1890  the  Brussels  Anti-Slavery  Conference  permitted  a  10 
per  cent,  import  duty  in  the  Congo  zone. 

281 


COMMERCIAL  POLICY 

upon.  A  state  bank  was  established  under  international 
control.  All  concessions  and  contracts  were  to  be  let 
publicly  without  discrimination.  In  case  a  contract  for  a 
Government  work  was  to  be  let,  the  diplomatic  represent- 
atives of  the  powers  entering  into  the  agreement  were  to 
be  notified.  In  general,  the  Conference  agreed  to  the 
principle  of  the  open  door  in  all  commercial  and  finan- 
cial matters. 

In  the  diplomacy  of  the  Far  East,  the  principle  of 
equality  in  commercial  matters  was  recognized  when 
Secretary  of  State  John  Hay  on  September  6,  1899,  re- 
quested and  later  received  from  the  nations  holding 
** spheres  of  influence"  in  China  the  pledge  that  they 
would  maintain  the  open  door  as  to  customs  duties, 
harbor  dues,  and  railroad  rates.  Later,  in  the  preamble 
of  the  Anglo-Japanese  Alliance,  signed  on  January  30, 
1902,  Japan  and  Great  Britain  reasserted  their  adher- 
ence to  the  open-door  principle,  to  the  effect  that  the 
parties  were  specially  interested  ''in  securing  equal  op- 
portunities" in  China  and  Korea  "for  the  commerce  and 
industry  of  all  nations." 

Much  of  the  difficulty  with  the  open-door  policy  has 
resulted  from  a  failure  to  recognize  and  to  acknowledge 
its  full  implications.  In  many  quarters  it  has  received 
lip  service  but  in  practice  has  either  been  evaded  by 
secret  devices  or  modified  by  so  many  exceptions  that  it 
has  become  little  more  than  an  aspiration.  It  must  not 
be  assumed  that  in  all  cases  where  international  confer- 
ences, diplomatic  notes,  and  treaties  have  proclaimed  the 
open  door,  the  door  has  remained  open.  Some  of  the 
ingenious  methods  by  which  the  door  has  been  closed  will 
be  considered  later.*     They  include  the  story  of  the  rail- 


♦  See  Chapter  XVII. 


282 


OPEN  DOOR  AND  COLONIAL  TARIFFS 

roads  and  other  concessions  of  China  and  of  the  develop- 
ment of  trade  and  finance  in  Asia  and  Africa.  Under 
Leopold  of  Belgium,  for  example,  free  trade  in  the  Congo 
Free  State  was  all  but  nullified  by  the  prohibition  of  trad- 
ing on  the  domain  of  the  State  and  on  the  lands  of 
companies  holding  concessions  —  in  other  words,  the 
greater  part  of  the  country.  It  is  the  secret  and  con- 
cealed influence  of  Governments,  working  in  or  co- 
operating with  trading  companies  and  nominally  private 
concerns  which  hold  railroad,  mining,  or  timber  conces- 
sions, that  presents  the  most  serious  menace  to  equality 
between  nations  in  commercial  and  financial  opportunity. 

Tariffs  have  played  a  large  part  in  the  controversies 
over  the  open-door  policy.  A  brief  survey  of  the  tariff 
policies  of  the  leading  nations  in  their  colonial  possessions 
will  help  to  clarify  our  problem.  In  the  dependent  colonies 
of  some  nations,  such  as  The  Netherlands,  Great  Britain, 
and  Germany,  the  open  door  has  been  maintained  in  im- 
port tariffs ;  in  the  dependent  colonies  of  other  nations, 
such  as  Italy,  France,  and  the  United  States  the  import 
tariffs  discriminate  against  foreign  goods,  giving  pref- 
erences to  the  mother  country. 

In  the  past  there  has  been  much  in  the  colonial  policy 
of  The  Netherlands  that  was  contrary  to  the  open-door 
principle.  The  colonial  monopoly  of  the  Old  Dutch 
East  India  Company  of  the  seventeenth  and  eighteenth 
centuries  is  proverbial.  Its  objectionable  practices  sur- 
vived it  by  more  than  half  a  century.  It  was  in  1800 
that  control  of  the  Dutch  East  Indies  passed  from  the 
Company  to  the  State.  Differential  duties  to  protect 
Dutch  products  and  shipping  (limited  somewhat  by 
treaty  obligations  to  other  powers)  were  maintained  un- 
til 1865  and  not  entirely  abolished  until  1872.      Since 

283 


COMMERCIAL  POLICY 


then  the  open-door  policy  has  been  strictly  maintained, 
so  far  as  the  tariff  is  concerned,  to  the  benefit,  it  is  de- 
clared by  a  leading  authority,  not  only  of  the  Indies,  but 
of  the  commerce  of  the  mother  country  as  well.^ 

Speaking  of  the  policy  of  The  Netherlands,  J.  T. 
Cremer,  Minister  of  The  Netherlands  to  the  United 
States,  said  ;* 

The  results  of  the  open-door  policy  are  very  satisfactory. 
Far  from  having  stunted  home  enterprise,  the  foreign  com- 
petition has  stimulated  and  strengthened  it;  and  its  products 
compete  with  those  of  other  nations  not  only  in  the  colonial 
but  also  in  the  world's  markets.  Although  Holland  hardly 
produces  any  charcoal,  and  produces  no  ores  of  any  kind, 
although  it  is  therefore  severely  handicapped  as  an  industrial 
country,  still  its  industries  have  greatly  developed  in  the  last 
century.  Its  shipping  enterprise  is  known  all  over  the  world ; 
in  the  transit  through  the  Suez  Canal  it  took  the  third  place 
before  the  war. 

The  East  Indian  Colonies  at  the  same  time  rapidly  de- 
veloped. The  total  trade  returns  amounting  in  1890  to 
300,000,000  florins,  in  1915  to  480,000,000  florins,  grew  in  1913 
to  one  milliard  florins,  which  at  the  rate  of  2^/2  florins  to  the 
dollar,  is  equivalent  to  $400,000,000.  They  more  than  trebled 
in  23  years.  The  imports  were  about  40  per  cent.,  the  exports 
CO  per  cent,  of  that  total.  Nearly  one-third  of  the  trade  was 
direct  between  mother  country  and  colony.  The  chief  im- 
ports were:  machinery,  iron  and  steel,  automobiles,  etc.  The 
exports  were:  sugar,  tobacco,  rubber,  tea,  coffee,  chincona, 
vegetable-oil,  etc. 

The  land  policy  of  The  Netherlands  in  Java  is  not 
without  its  bearing  on  the  open-door  principle.  The 
Dutch  succeeded  to  the  sovereignty  of  the  native  princes 
who  had  formerly  ruled  in  the  islands.      That  sover- 

5Clive  Day,  "Dutch  Colonial  Fiscal  System,"  Publications  of 
the  American  Economic  Association,  1900,  p.  75  et  seq. 

«  Proceedings  of  the  American  Economic  Association,  meeting  at 
Bichmond,  Virginia,  December,  1918. 

284 


OPEN  DOOR  AND  COLONIAL  TARIFFS 

eignty,  being  absolute,  included  complete  rights  to  the 
property  and  persons  of  the  inhabitants.      There  fol- 
lowed, under  the  Dutch,  assured  tenancy  and  a  system 
of  enforced  labor,  which  was  akin  to  feudalism.      The 
last  vestige  of  the  Government's  right  to  enforced  labor 
was  finally  renounced,  however,  and  the  natives  have 
'^by  the  Netherlands  Government  been  proclaimed  free 
tenants  of  the  land  they  were  accustomed  to  till.''     The 
Dutch  maintain  that  it  was  the  native  inability  to  con- 
ceive of  the  meaning  of  freehold,  rather  than  any  re- 
luctance on  the  part  of  the  Government  to  give  them 
complete  title,  that  caused  the  natives  to  regard  them- 
selves as  *  temporary  boarders  for  lifetime"  rather  than 
as  ''freeholders  of  an  inheritable  plot  of  land."     Today 
unoccupied  lands  may  be  leased  by  Europeans  for  long 
terms  from  the  Government,  and  lands  occupied  by  the 
natives  may  be  leased  from  them  for  short  periods.     It 
is  said  that  were  it  not  for  the  rule  prohibiting  natives 
from  alienating  their  lands  permanently,  the  Chinese, 
who  are  much  shrewder  than  the  Javanese,  would  soon 
be  in  complete  possession,  and  the  natives  would  be  re- 
duced to  semi-slavery.^ 

British  dependent  colonies  are  usually  classed  as  fol- 
lows: (1)  India;  (2)  the  Crown  Colonies,  which  are 
completely  under  the  control  of  the  Home  Government ; 
(3)  the  legislative  colonies,  which  have  representative 
institutions  and  a  partial  control  over  their  own  affairs, 
but  for  which  public  officials  are  appointed  from 
London.^  In  all  of  these  colonies  except  the  West  Indian 
colonies  in  the  last  named  class  the  import  tariffs  em- 

T  Netherlands  East  Indies  San  Francisco  Committee,  Department 
of  Agriculture,  Industry  and  Commerce  Pamphlets,  No.  16  (1914), 

p.  8  et  seq.  -stt-kt 

8  For  self-governing  British  Dominions  see  Chapter  AiV. 

285 


COMMERCIAL  POLICY 

body  the  principle  of  the  open  door.  British  have  no 
preference  over  foreign  goods.  Great  Britain,  however, 
has  recently  levied  export  taxes  on  palm  kernels,  raw 
cocoa,  and  jute  when  exported  from  British  West  Africa 
and  India,  and  these  taxes  are  remitted  if  the  exports 
go  to  any  portion  of  the  British  Empire.^  These  in- 
dications of  the  beginnings  of  a  policy  of  discrimination 
are  significant. 


Spain,  which  in  former  centuries  was  one  of  the  most 
important  of  the  colonial  powers,  has  now  but  a  few 
remnants  of  her  great  colonial  empire.     Her  most  im- 
portant   colony   is    the   group   known   as   the    Canary 
Islands  off  the  west  coast  of  northern  Africa.      These 
Islands  have  been  in  the  possession  of  Spain  since  about 
the  year  1500.      The  other  Spanish  possessions  are  in 
Africa,  and  include  a  district  known  as  Rio  Muni,  on 
the  African  mainland  bordering  on  the  Gulf  of  Guinea, 
and  certain  islands  off  the  coast,  the  chief  of  which  is 
Fernando  Po.     In  northern  Africa  Spain  owns  the  dis- 
trict of  Rio  de  Oro  and  has  a  protectorate  over  the 
northern  portion  of  Morocco.      The  entire  area  of  her 
colonial  possessions  amounts  to  not  much  over  100,000 
square  miles. 

Adherence  to  a  policy  of  colonial  monopoly  is  tradi- 
tional with  Spain.  This  policy  is  still  applied  through 
preferential  treatment  of  trade  between  the  colonies  and 
the  mother  country.  Certain  colonial  products  from  the 
Canary  Islands  and  from  Spanish  possessions  in  the  Gulf 
of  Guinea  are  given  preference  in  the  home  market. 
Preferences  are  also  established  by  Spain  on  Spanish 

-.no^^^.^®^^®^  ^^^*  ''Trade  Supplement,"  December,  3917  p 
]^^;^he  Americas,  vol  ii,  no.  10,  July,  1916,  p.  20;  The  Nation 
(London),  August  3,  1918. 

286 


OPEN  DOOR  AND  COLONIAL  TARIFFS 

goods  in  certain  colonial  markets.  With  the  exception 
of  Morocco,  where  the  open  door  is  established  by  inter- 
national agreement,  preferences  are  the  rule.  The  im- 
port tariff  of  the  Spanish  possessions  in  the  Gulf  of 
Guinea  has  two  schedules :  one  on  goods  of  foreign  origin 
or  goods  imported  in  foreign  vessels;  another,  sub- 
stantially lower,  on  goods  of  Spanish  origin  imported  in 
Spanish  vessels.  Preferences  are  also  found  m  the  ex- 
port taxes. 

Germany  entered  late  in  the  race  for  colonies.     She 
was  inspired  to  enter  by  many  motives,  but  chiefly  by  the 
desire   for    commercial    advantage.       Other    industrial 
countries  had  tropical  and  subtropical  colonies  which 
supplied  raw  materials  and  which  furnished  markets 
and  opportunities  for  the  investment  of  capital.     Pref- 
erential tariffs  in  colonies  and  the  possibility  of  the  ex- 
tension of  the  policy  of  exclusion  to  other  colonies  and 
to  *' protectorates"  impelled  Germany  to  seek  political 
control  over  parts  of  the  world.     Dernburg,  the  German 
Colonial  Secretary,  said:^«     **A  country's  own  colonies 
become  an  instrument  of  commercial  policy,  since  a 
nation  secures  rights  and  privileges  in  foreign  colonies 
only  when  one  can  offer  corresponding  rights  and  privi- 
leges in  her  own  colonies."    Germany's  first  colony  was 
acquired  in  Africa  in  1884;  the  last  important  one, 
Kiao-Chau    in    Shantung    Province,    was    taken    from 
China  in  1897>^      Her  colonial  empire  included  Togo- 
land,  Kamerun,   German  South-West  Africa,   German 
East  Africa,  German  New  Guinea,  Kiao-Chau,  and  cer- 

10  From  an  address  entitled  ZielpunUe  des  Deutsclien  Kolonial- 

wesens  (Berlin,  1907).  .  x,^„f„  ^f  Op+nhpr  1 

11  The  Caroline  Islands  were  acquired  by  treaty  of  October  i, 
1899,  and  the  German  claim  to  a  share  of  Samoa  was  recognized 
by  treaty  of  November  14,  1899. 

287 


COMMERCIAL  POLICY 

tain  small  islands  in  the  South  Pacific,  in  all  just  over  a 
million  square  miles. 

The  published  tariff  rates  of  German  colonies  show  no 
preferences.  German  goods  received  no  preferences  in 
the  colonies;  colonial  goods  received  no  preferences  in 
Germany.  But  the  questions  may  be  raised:  Were 
there  any  concealed  preferences,  and  if  not,  what  motive 
led  Germany  to  pursue  an  open-door  policy  ? 

Preferences  may  be  concealed  by  arranging  the  free 
list  in  order  to  exempt  from  import  duties  articles  pre- 
dominantly of  German  origin;  by  placing  relatively 
lower  duties  on  goods  that  are  important  in  the  com- 
merce between  the  colonies  and  the  mother  country ;  by 
administrative  regulations  that,  although  apparently 
applying  to  all  equally,  favor  German  goods.  Evidence 
relating  to  such  practices  is  very  difficult  to  obtain,  but 
it  seems  safe  to  say  that  there  is  no  proof  that  Germany 
ever  closed  the  door  in  her  colonies.^^ 

In  the  Congo  Basin,  which  was  defined  to  include 
German  East  Africa  and  part  of  the  Kamerun,  dis- 
criminations were  prohibited  by  the  Berlin  Act  of  1885. 
There  was  also  a  selfish  motive  for  refraining  from 
adopting  preference.  Germany  was  not  in  a  Strong 
position  in  regard  to  colonial  policy.  Had  she  adopted 
preference,  it  might  have  led  to  retaliation  by  such 
colonial  powers  as  Great  Britain  and  France,  and  in  that 
case  Germany's  loss  would  have  been  out  of  all  propor- 
tion to  the  gain  from  preference,  as  her  colonies  were 
insignificant  and  undeveloped  in  comparison  with  the 
older  and  richer  colonies  of  France  and  Great  Britain. 

Italy,  like  Germany,  did  not  begin  to  seek  a  colonial 

12  Cf.  however,  German  earlj  policy  in  Kiao-Chau,  Stanley  K. 
Mornbeck,  Contemporary  Politics  in  the  Far  East  (1916)  d  29fi 
et  seq.  ^         /»  i"    •^^ 

288 


OPEN  DOOR  AND  COLONIAL  TARIFFS 

empire  until  the  better  parts  of  the  earth's  surface  were 
preempted.  The  Italian  colonies,  Eritrea,  Somaliland, 
and  Libia  (Tripoli),  were  acquired  in  the  order  named. 
The  colony  of  Eritrea  attained  its  present  boundaries, 
approximately,  by  1900.  Somaliland  includes  the  colony 
proper  and  to  the  north  several  protectorates.  It  was 
acquired  in  1889  with  the  exception  of  the  four  chief 
ports  of  the  southern  part,  which  were  leased  in  1893 
from  the  Sultan  of  Zanzibar  and  purchased  in  1905. 
Libia  was  annexed  by  decree  of  November  5,  1911,  al- 
though the  treaty  of  peace  with  Turkey  was  not  signed 
for  almost  a  year  and  guerilla  warfare  continued  even 
longer.  The  commercial  importance  of  these  colonies  is 
insignificant.  Exports  are  small,  and  the  total  trade  of 
all  three  does  not  exceed  20  million  dollars  per  annum. 

The  tariffs  of  these  Italian  colonies  are  low.  Certain 
preferences  in  favor  of  Italian  products  exist  in  the 
import  schedules  and  in  the  export  taxes  of  Somaliland, 
and  colonial  goods  from  Eritrea  enjoy  some  preferences 
in  the  Italian  market.  For  our  purpose  a  few  examples 
will  suffice.  Italian  goods  when  entering  Eritrea  pay 
only  a  statistical  tax  of  one  per  cent,  as  against  eight  to 
15  per  cent,  paid  by  foreign  goods.  The  imports  of 
Italian  cottons  have  greatly  increased,  whereas  the  im- 
ports of  foreign  cottons  have  declined.  The  same  ten- 
dency is  seen  in  cotton  imports  into  Somaliland,  where 
Italian  goods  also  have  the  benefit  of  a  preference.  Cer- 
tain articles,  particularly  hides,  when  exported  from 
Somaliland  to  Italy  have  a  preference  in  the  export 
taxes.  There  is  a  tendency  to  increase  preferences,  and 
they  have  begun  to  appear  in  the  Libian  tariff. 


France's  colonial  empire  includes  enormous  areas  and 
the  utmost  diversity  of  peoples.      In  Africa,  where  by 

289 


COMMERCIAL  POLICY 

far  the  largest  territory  is  controlled,  it  includes  Tunis, 
Algeria,  Morocco,  large  sections  of  west  and  Equatorial 
Africa,  and  Madagascar ;  in  Asia  the  chief  possession  is 
Indo-China;  and  in  America  and  Oceania  possessions 
are  held,  the  most  important  of  which  is  New  Caledonia. 

French  colonies  may  be  classified  for  tariff  discussion 
into  assimilated,  open-door,  and  special-regime  colonies. 
Although  there  are  some  exceptions,  those  of  the  first 
group  have  the  same  tariff  as  the  mother  country,  and 
with  France  they  not  only  have  free  trade,  but  are 
assimilated  into  a  common  customs  union.  These 
colonies  are  Algeria,  Indo-China,  Tunis  (in  part),  Mada- 
gascar, Reunion,  Martinique,  Guadeloupe,  New  Cale- 
donia, French  Guiana,  and  Gaboon.  In  the  second 
group,  the  open-door  colonies,  there  are  very  low,  or  no, 
tariff  duties.  Generally,  their  goods  pay  the  minimum 
rates  when  imported  into  France,  but  there  are  a  few 
special  preferences.  These  colonies  are  Morocco,  French 
Somaliland,  Dahomey,  the  Ivory  Coast,  French  India, 
and  Equatorial  Africa  outside  of  Gaboon;  to  these 
French  tariff  policy  adds  also  the  New  Hebrides.^^ 
Those  of  the  third  group,  the  special-regime  colonies, 
have  special  tariffs  containing  some  preferences.  They 
are  West  Africa  (excluding  Dahomey  and  the  Ivory 
Coast),  Oceania,  and  St.  Pierre  and  Miquelon. 

The  assimilated  colonies  are  France's  most  important 
colonies.  As  they  are  in  customs  union  with  France 
and  levy,  therefore,  the  high  duties  of  the  French  tariff 
on  foreign  goods,  the  discrimination  in  favor  of  French 
and  French  colonial  products  is  100  per  cent.  In  the 
sipecial-reghne  colonies  the  relative  discrimination  is 
equally  great  but  the  rates  are  lower. 

13  The  New  Hebrides  are  under  the  condominium  of  France  and 
Great  Britain  and  are  not  technically  a  French  colony. 

290 


1 


OPEN  DOOR  AND  COLONIAL  TARIFFS 

In  French  markets  the  products  of  the  assimilated 
colonies  (except  pepper  and  sugar)  are  given  a  prefer- 
ence of  100  per  cent.  On  imports  of  certain  articles  from 
some  of  the  open-door  and  special-re^me  colonies  pref- 
erences are  allowed. 

Article  IV  of  the  Treaty  of  Paris,  which  in  1898 
brought  to  a  close  the  Spanish- American  War,  provides : 

The  United  States  will,  for  the  term  of  ten  years  from  the 
date  of  the  exchange  of  the  ratifications  of  the  present  treaty, 
admit  Spanish  ships  and  merchandise  to  the  ports  of  the 
Philippine  Islands  on  the  same  terms  as  ships  and  merchandise 
of  the  United  States. 

Connected  with  this  Article  occurs  probably  the  first 
mention  in  American  diplomatic  correspondence  of  the 
words  ' '  the  open  door. ' '  The  protocol  shows  that  the 
Spanish  commissioners  asked: 

Is  the  offer  made  by  the  United  States  to  Spain  to  establish 
for  a  certain  number  of  years  similar  conditions  in  the  ports 
of  the  Archipelago  for  vessels  and  merchandise  of  both  nations, 
an  offer  which  is  preceded  by  the  assertion  that  the  policy  of 
the  United  States  is  to  maintain  an  open  door  to  the  world's 
commerce,  to  be  taken  in  the  sense  that  the  vessels  and  goods 
of  other  nations  are  to  enjoy  or  can  enjoy  the  same  privilege 
which  for  a  certain  time  is  granted  those  of  Spain  while  the 
United  States  do  not  change  such  policy? 

The  American  commissioners  replied : 

The  declaration  that  the  policy  of  the  United  States  in  the 
Philippines  will  be  that  of  an  open  door  to  the  world's  com- 
merce necessarily  implies  that  the  offer  to  place  Spanish  vessels 
and  merchandise  on  the  same  footing  as  American  is  not  in- 
tended to  be  exclusive.  But,  the  offer  to  give  Spain  that  privi- 
lege for  a  term  of  years,  is  intended  to  secure  it  to  her  for  a 
certain  period  by  special  treaty  stipulation  whatever  might  be 
at  any  time  the  general  policy  of  the  United  States. 

291 


I 


I 


COMMERCIAL  POLICY 

Article  IV  of  the  Treaty  of  Paris  was  not  included  in 
the  original  proposal  of  the  American  commissioners, 
but  was  granted  as  a  concession  after  a  prolonged  debate 
over  the  disposal  of  the  islands.  A  revision  of  the 
Philippine  tariff  was  undertaken  almost  immediately, 
and  as  soon  as  a  draft  was  prepared,  it  was  sent  to  the 
War  Department  and  from  there  distributed  among 
American  exporters  with  requests  that  suggestions  be 
made.  These  suggestions  indicated  means  of  classifying 
goods  so  as  to  provide  a  concealed  discrimination  for 
American  goods.^*  Many  of  these  suggestions  were 
accepted.  Colonel  Edwards,  Chief  of  the  Bureau  of 
Insular  Affairs,  said  of  it:^''  ^*  While  no  different  duty 
in  favor  of  American  products  is  openly  mentioned,  the 
articles  were  so  described  in  the  tariff  as  to  allow  an 
advantage  to  American  goods.'' 

The  Ways  and  Means  Committee  in  presenting  a  re- 
vision bill  to  Congress  on  February  13, 1905,  said  :^* 

The  general  purpose  of  the  bill,  as  of  the  former  Act,  is  to 
give  the  United  States  what  benefits  there  are  arising  from 
classification  of  goods.  There  is  no  preference  in  rates  given 
to  goods  coming  from  the  United  States  for  the  reason  that 
by  the  terms  of  the  treaty  of  Paris  Spain  would  have  the 
right  to  a  similar  preference  on  goods  imported  from  Spain 
to  the  Philippine  Islands  until  January,  1909. 

Certain  open  preferences  were  also  allowed  on  raw 
materials  exported  from  the  Philippines  in  which  cer- 
tain manufacturing  concerns  of  the  United  States  were 
interested.  Upon  the  production  of  evidence  of  con- 
sumption in  the  United  States,  the  Philippine  export 
tax  on  hemp  was  refunded,  and  on  copra,  sugar,  and 

i*Sen.  Doc.  171,  57th  Cong.,  1st  Sess. 
15  Washington  Post,  December  11,  1901. 
i«  House  Report  4600,  59th  Cong.,  3d  Sess. 

292 


OPEN  DOOR  AND  COLONIAL  TARIFFS 

tobacco  the  import  tax  was  decreased  by  the  amount  of 
the  export  tax. 

The  United  States  Tariff  Act  of  1909  established  free 
trade  between  the  Philippines  and  the  United  States 
with  a  few  exceptions  (which  were  practically  all  omitted 
from  the  Tariff  Act  of  1913)  ;  that  is,  no  import  duties 
were  to  be  assessed  on  domestic  products  of  either  the 
United  States  or  the  Philippines  when  entering  the  ports 
of  the  other.  Thus  Congress  definitely  abandoned  the 
open-door  policy.  For  some  years  prior  to  1909  there 
had  been  a  few  preferences  to  such  Philippine  products 
as  sugar.  The  Philippine  Tariff  Act  of  August  5,  1909, 
enacted  by  the  United  States  Congress,  contains  the 
rates  of  duty  that  are  to  be  levied  on  imports  in  the 
Philippines  from  countries  other  than  the  United  States. 
The  tendency  of  this  Tariff  Act,  it  is  said,  was  to  exclude 
foreign  competition  with  American  products  in  the 
Philippines,  and  the  Act  was,  therefore,  opposed  bitterly 
by  some  classes  in  the  Islands. 

The  preceding  brief  review  of  colonial  systems  indi- 
cates a  variety  of  attitudes  toward  the  open  door  in 
tariff  making.  In  the  colonies  of  Great  Britain,  The 
Netherlands,  and  Germany,  from  various  motives,  no 
preferences  were  established  in  favor  of  the  mother 
country,  and  colonial  goods  were  accorded  the  same  treat- 
ment as  foreign  goods  in  the  markets  of  the  mother 
country.  Spain,  Italy,  France,  and  the  United  States 
have,  on  the  other  hand,  pursued  a  policy  of  preferences, 
and  have  endeavored  to  direct  trade  to  their  own  advan- 
tage by  means  of  discriminatory  rates.  This  should  not 
be  taken  as  a  classification  of  *  *  saints  and  sinners. ' '  The 
adoption  of  the  open  door  in  tariff  legislation  is  not 
necessarily  evidence  of  a  liberal  position.      Germany 

293 


COMMERCIAL  POLICY 

adopted  it  at  the  same  time  that  her  Colonial  Secretary, 
Dernburg,  was  saying  that  colonies  are  **an  instrument 
of  commercial  policy. ' '  The  open  door  has  been  a  policy 
favorable  to  the  world-wide  trading  interests  of  Great 
Britain,  and  in  order  to  be  in  a  position  to  urge  it  else- 
where, she  necessarily  had  to  adopt  it  in  her  dependent 
colonies.  The  Netherlands  in  spite  of  their  open-door 
policy  have  managed  by  other  means  —  for  example, 
shipping  —  to  retain  the  greatest  share  of  the  trade  of 
their  colonies. 

Nevertheless,  the  principle  of  the  open  door  is  the 
correct  one,  and  the  international  conferences  and  the 
agreements  that  have  proclaimed  it  are  precedents  for 
future  action.  The  open-door  principle  is  the  antithesis 
of  the  policy  that  colonies  exist  for  the  exclusive  bene- 
fit of  the  mother  country.  It  recognizes  the  interests  of 
outside  nations  and  of  the  colony  itself.  Colonies  should 
not  be  ''an  instrument  of  commercial  policy.''  Too 
frequently  they  are  so  regarded.  The  open  door  in  im- 
port tariffs  is  desirable,  but  no  more  desirable  than  the 
open  door  in  export  tariffs,  navigation,  and  investment. 
Nations  that  congratulate  themselves  on  equality  in 
tariff  matters  may,  nevertheless,  so  bar  and  bolt  the  door 
in  other  fields  that  it  makes  little  difference  whether  the 
door  is  opened  or  closed  in  the  tariff  schedules.  Colonial 
monopoly  can  be  maintained  by  navigation  laws,  by 
Government  ownership  and  control  of  lands  and  com- 
panies, by  exclusive  trading  concessions,  and  by  restric- 
tions on  investment. 

If  there  is  one"  thing  that  the  war  should  end  forever, 
it  is  colonial  monopoly  and  the  exploitation  of  outlying 
parts  of  the  world  by  nations  that  control  them  politi- 
cally. The  defeat  of  Germany  and  the  breaking  up  of 
the  Russian  and  Turkish  Empires  have  greatly  increased 

294 


OPEN  DOOR  AND  COLONIAL  TARIFFS 

the  areas  for  which  the  Allied  Powers  will  have  to  pro- 
vide administration.  Central  Africa,  Asia  Minor,  Syria 
and  Mesopotamia,  and  parts  of  the  Russian  Empire  must 
not  be  permitted  to  become  the  exclusive  trade  and  in- 
vestment preserves  of  any  power.  Colonies  should  be 
regarded,  and  are  regarded  by  the  most  advanced 
nations,  as  trusts  which  they  are  called  upon  to  adminis- 
ter. Preferences  enjoyed  by  the  trustee  are  inconsistent 
with  the  trusteeship. 


CHAPTER  XVI 

PREFERENCES  —  AN   INTERNATIONAL  PROBLEM 

Economic  effect  of  tariff  preferences  —  Spirit  in  which  the 
problem  should  be  approached  —  Undesirableness  of  dis- 
criminatory treaties  between  nations  —  Of  tariffs  favoring  the 
mother  country  in  dependent  colonies  —  Of  British  pref- 
erential tariffs  —  Necessity  for  international  agreement  — 
Concealed  discriminations  —  Possible  grounds  for  exception  to 
the  rule  of  equality  of  treatment  — An  International  Tariff 
Commission  proposed  —  Its  powers  and  duties. 

*' Equality  of  trade  conditions"^  can  be  achieved  only 
by  the  removal  of  discriminatory  economic  barriers  such 
as  special  reciprocity  treaties,  preferential  arrangements, 
and  tariffs  that  establish  lower  rates  for  the  goods  of 
colonies  and  the  mother  country  than  are  paid  by  for- 
eign goods.  Such  discriminations  obviously  involve 
world  interests;  they  are,  therefore,  subjects  for  inter- 
national discussion,  and  perhaps  decision.  No  doubt 
their  economic  value  to  the  favored  nation  and  their 
material  injury  to  the  excluded  nations  have  been  ex- 
aggerated. Nevertheless,  the  nations  discriminated 
against  are  aggrieved.  Whether  rightly  or  wrongly, 
they  think  they  are  injured.  Suspicion  arises.  Re- 
taliation is  planned  and  put  into  effect.  Trade  wars 
follow,  and  bitterness  and  hostility  are  engendered  be- 
tween peoples.  It  can  no  longer  be  said  that  a  special 
discriminatory  treaty  between  two  peoples  is  their  con- 
cern alone.     Nor  can  it  be  said  that  preferences  between 

1  President  Wilson  in  his  address  to  Congress  on  January  8, 
1918,  advocated,  as  the  third  of  his  14  points,  *'the  removal,  so 
far  as  possible,  of  all  economic  barriers  and  the  establishment  of 
an  equality  of  trade  conditions  among  all  nations  consenting  to 
the  peace  and  associating  themselves  for  its  maintenance.'' 

296 


« 


PREFERENCES 

a  nation  and  its  colonies  are  purely  domestic  problems. 
To  take  such  a  position  is  simply  to  refuse  to  face 
squarely  one  of  the  most  fruitful  sources  of  international 
friction.  The  disposal  of  the  matter  depends  funda- 
mentally upon  the  spirit  in  which  nations  come  together 
for  the  consideration  of  preferences.  If  the  spirit  is 
that  of  selfishly  seeking  to  hold  to  every  material  ad- 
vantage that  political  power  for  the  moment  makes 
possible,  no  substantial  progress  will  be  made,  and  the 
world  will  settle  back  into  the  old  fatal  circle  of  dis- 
criminations, trade  rivalries,  hostility,  and  war.  If, 
however,  nations  recognize  that  they  are  faced  with  the 
need  for  revolutionary  action,  if  the  spirit  which  guides 
is  that  of  a  willingness  to  give  up  something  in  the  in- 
terests of  world  harmony  and  goodwill,  we  may  hope  for 
a  gemiine  solution  of  the  perplexing  problem  of  dis- 
criminatory barriers. 

Something  should  be  said  at  the  outset  on  the  economic 
effect  of  preferential  arrangements  and  special  reciproc- 
ity treaties.  Preferences  may  be,  but  are  not  neces- 
sarily, beneficial  to  the  consumer ;  they  may  be  subsidies 
to  the  producer  in  the  exporting  country.  The  well 
known  economic  principle  that  prices  are  determined  by 
the  cost  of  the  last  portion  of  the  supply  of  a  commodity 
obtained  is  governing.  Quantity  and  quality  of  the 
goods  receiving  the  preferential  treatment  are  also  im- 
portant factors.  Three  possible  cases  may  be  distin- 
guished where  the  discrimination  takes  the  form  of  the 
application  of  additional  duties  on  the  products  of  non- 
favored  countries. 

When  the  commodities  of  a  nation  enjoying  a  prefer- 
ence in  another  country  or  in  its  colony  would,  because 
of  their  superiority  in  quality  and  price,  dominate  the 

297 


COMMERCIAL  POLICY 

market  even  without  the  preference,  the  result  of  a 
higher,  discriminatory  tariff  on  goods  of  a  third  nation 
would  be  negligible;  tariff  rates  on  goods  not  enjoying 
the  preference  would  be  merely  nominal,  and  the  articles 
would  sell  to  the  consumer  on  the  basis  of  the  lower 
duties.  Thus,  American  products  that  dominated  the 
Philippine  market  without  the  preference  sell  there 
under  the  preference  on  the  basis  of  free  imports.  It 
should  be  added  that  this  would  not  happen  unless  there 
were  free  competition.  If  a  combination  controlled  all 
of  the  products  enjoying  the  preferences,  it  would  be 
enabled  to  raise  the  price  substantially  by  the  amount 
of  the  preference,  and  the  benefits  of  free  competition 
would  not  accrue. 

In  the  case  of  those  commodities  enjoying  preferential 
treatment  that  under  equal  treatment  could  not  enter 
the  market,  but  under  a  preference  enter  in  amounts 
which  are  substantial  but  not  sufficiently  great  entirely 
to  displace  non-favored  imports,  the  higher  discrimina- 
tory rates  on  the  same  commodity  from  other  sources 
would  operate  as  a  full  subsidy  to  the  producers  receiv- 
ing the  preference  at  the  expense  of  the  consumer ;  that 
is  to  say,  prices  would  be  determined  by  the  imports  of 
that  portion  of  the  commodity  that  paid  the  higher 
discriminatory  rates.  Thus  in  the  case  of  goods  im- 
ported into  New  Zealand,  a  portion  of  which  come  from 
the  United  States  and  a  portion  at  lower  rates  of  duty 
from  Great  Britain,  the  New  Zealand  consumer  pays  a 
higher  price  in  consequence  of  the  higher  duties  on  the 
American  imports,  and  the  tariff  preference  measures 
the  subsidy  to  the  British  producer  on  each  of  his 
products  imported. 

Commodities  enjoying  a  tariff  preference  that  are 
dearer  than  similar  products  paying  the  higher  discrim- 

298 


PREFERENCES 

inatory  rates,  and  yet  are  able,  by  virtue  of  the  tariff 
preference,  entirely  to  displace  them  in  the  market, 
command  a  higher  price  in  the  favoring  market  than  they 
would  if  imports  from  all  countries  paid  the  same  tariff 
rates.  In  such  a  case,  as,  for  example,  British  products 
imported  into  Canada  under  the  preference  which  could 
not  be  imported  profitably  otherwise,  the  consumer  loses 
without  there  being  any  corresponding  increase  in  the 
public  revenues.  Here  again,  as  in  the  second  case,  the 
increase  in  price  to  the  consumer  measures  the  subsidy  to 
the  favored  producer.  But  in  this  case  the  amount  of 
the  subsidy  would  probably  be  somewhat  less  than  the 
amount  of  the  preference  unless  the  favored  producers 
were  in  close  enough  agreement  to  extort  from  the  con- 
sumer the  full  benefit  of  the  higher  rates  on  the  products 
of  their  non-favored  competitors. 

In  all  of  these  cases  it  is  true  that  whatever  benefit 
accrues  to  the  favored  producer  is  at  the  expense  of  the 
consumer  in  the  country  granting  the  preference. 
"Where  the  preference  takes  the  form  of  a  reduction  of 
duties  on  imports  from  a  favored  country  instead  of  the 
application  of  additional  duties  to  imports  from  non- 
favored  countries,  the  method  of  operation  and  the  effects 
of  the  preference  are  different  in  detail  but  similar  in 
general  results.  Whereas  under  preference  by  addi- 
tional duties  on  non-favored  imports,  the  subsidy  to  the 
favored  producer  is  borne  by  the  consumer,  under  pref- 
erence by  reduced  duties  on  favored  imports  the  burden 
of  the  subsidy  to  the  favored  producer  is  borne  by  the 
treasury  of  the  country  granting  the  preference,  in  the 
form  of  reduced  customs  revenue. 

Not  the  least  among  the  important  problems  with 
which  the  peoples  of  the  nations  are  confronted  are  the 

299 


COMMERCIAL  POLICY 

scope  of  the  most-favored-nation  clause  in  commercial 
treaties,  the  limitations  upon  the  use  of  special  reciproc- 
ity treaties  and  preferential  tariffs  within  empires,  and 
the  use  of  customs  unions.  Probably  the  first  question 
which  will  have  to  be  faced  in  considering  these  policies 
will  be  whether  or  not  they  may  be  dealt  with  internation- 
ally at  all.  In  spite  of  the  fact  that  experience  has  in- 
sistently demonstrated  the  need  for  international  treat- 
ment, some  may  take  the  position  that  special  reciprocity 
treaties  between  nations  and  preferences  within  empires 
are  no  concern  of  third  parties.  Instead  of  applying 
further  the  principle  of  equality  of  treatment  to  the 
relations  of  nations,  the  adoption  of  an  opposite  policy 
has  been  suggested.  In  the  resolutions  of  the  Paris 
Economic  Conference^  it  was  agreed  to  deny  the  Central 
European  Powers  most-favored-nation  treatment  for  an 
indefinite  period  of  years.  Russia,  France,  and  Italy 
have  denounced  their  commercial  treaties  containing  the 
unconditional  form  of  the  most-favored-nation  clause. 

Before  the  war  nations  had  come  to  recognize  gener- 
ally the  undesirability  of  special  reciprocity  treaties. 
Even  the  United  States  after  its  varied  experience  with 
them  abandoned  in  1909  the  policy  of  bargaining  for  ex- 
clusive favors.  The  Brazil  agreement  survived  more 
from  inertia  than  from  deliberate  policy,  and  Cuba  was 
a  special  case  which  will  be  considered  later.  In  Europe 
special  reciprocity  treaties  between  nations  were  all  but 
unknown.  By  means  of  a  network  of  commercial 
treaties  containing  the  unconditional  form  of  the  most- 
favored-nation  clause,  concessions  made  by  one  country 
to  another  were  immediately  and  without  negotiation 
extended  to  all  other  nations  entitled  to  favored  treat- 
ment.    Nations  learned  from  experience  that  the  most 


2  Appendix  II. 


300 


PREFERENCES 

any  one  of  them  could  expect  in  the  long  run  was  equal- 
ity of  treatment.  Special  favors  always  led  to  retalia- 
tions which  more  than  destroyed  the  advantages  of  the 
special  concessions.  European  nations  found  it  in  line 
with  the  interests  of  each  to  adopt  a  general  principle 
that  would  automatically  maintain  equality  in  their 
tariffs.  Recognizing  then  the  possibilities  of  the  viola- 
tion of  the  spirit  of  the  unconditional  form  and  interpre- 
tation of  the  most-favored-nation  clause,^  its  general 
adoption  by  all  nations  is  unquestionably  the  first  step 
in  the  construction  of  a  policy  of  equality  of  treatment 
among  nations.  Because  a  good  rule  is  evaded  is  an  argu- 
ment, not  for  its  abandonment,  but  for  its  more  rigid 
enforcement.  Now  that  the  United  States  is  to  take  a 
more  active  part  in  the  affairs  of  the  world,  and  that  too 
as  a  champion  of  the  principle  of  equality,  it  cannot 
consistently  retain  the  conditional  form  and  interpreta- 
tion of  the  most-favored-nation  clause. 

Nations  before  the  war  found  it  expedient  to  go  still 
further  in  establishing  equality  of  treatment.  Great 
Britain,  The  Netherlands,  and  Germany  extended  it  to 
their  dependent  colonies.  At  international  conferences 
and  in  treaties  the  open  door  was  agreed  upon  for  large 
portions  of  the  earth's  surface,  but  usually  for  countries 
where  no  single  nation  had  more  than  a  shadowy  claim 
to  exclusive  political  control,  or  where  the  local  govern- 
ment, although  theoretically  independent,  was  ineffective. 
As  a  post-war  policy,  would  it  not  be  feasible  to  extend 
the  principle  ?  Great  areas  of  Asia,  Africa,  the  Pacific 
Islands,  and  America  will  have  to  continue  indefinitely 
in  a  position  of  dependence  upon  the  strong  powers. 
The  breaking  up  of  the  Russian  and  Turkish  Empires 


8  See  Chapter  X. 


301 


COMMERCIAL  POLICY 

has  added  to  this  area.  Asia  Minor,  Syria,  and  Meso- 
potamia must  have  some  tutelage  before  they  are  ready 
to  assume  self-government.  These  dependent  parts  of 
the  world  should  not  be  the  exclusive  preserves  of  any 
nation.  Narrow  colonial  policies  were  too  much  a  con- 
tributing cause  of  the  war  for  the  nations  to  permit  them 
to  continue.  The  development  of  the  backward  parts  of 
the  world  economically  and  in  self-government  is  a  mat- 
ter of  international  concern.  If  international  control  of 
them  does  not  prove  feasible  now,  it  should  be  made 
clear  that  the  nation  vested  with  political  control  of  a 
dependent  country  is  in  the  position  of  a  trustee  and  is 
answerable  to  the  League  of  Nations  for  the  performance 
of  its  trust.  From  this  it  would  follow  that  the  mother 
country  should  have  no  preferential  treatment  in  the 
tariffs  of  the  colony  or  protectorate.  As  they  are  inter- 
national wards,  the  trade  of  the  dependent  parts  of  the 
world  should  be  open  equally  to  all. 

In  any  consideration  of  equality  in  tariff  matters  the 
preferential  tariffs  of  the  self-governing  British  do- 
minions cannot  be  passed  over.  These  political  divisions 
of  the  world  —  Canada,  Australia,  New  Zealand,  and 
the  South  African  Union  —  are  sui  generis.  Nothing 
like  them  exists  anywhere  else.  They  are  not  *  *  colonies ' ' 
in  the  old  sense  of  that  word.  Except  for  a  theoretical 
veto  retained  by  Great  Britain  but  now  never  exercised, 
they  have  complete  domestic  autonomy.  They  may  enact 
any  legislation  they  desire,  including  tariff  laws  that 
exclude  British  goods  for  the  purpose  of  developing  their 
home  manufactures.  On  the  other  hand,  they  have  not 
fully  the  status  of  ''nations.''  Their  foreign  affairs  are 
in  large  part  conducted  from  London,  where  their  voices 
are  having  an  increasing  influence.     They  must  adhere 

302 


( 


PREFERENCES 

to  the  treaty  obligations  of  Great  Britain  even  if  the 
terms  of  those  treaties  conflict  with  their  domestic  legis- 
lation.    In  spite  of  these  limitations,  however,  the  self- 
governing  dominions  of  the  British  Empire  have  many 
of  the  characteristics  of  ''nations.''      Canada  was  al- 
^    lowed  practically  a  free  hand  in  negotiating  the  reci- 
procity agreement  with  the  UniteH  States  in  1911.     The 
relation  between  Great  Britain  and  the  self-governing 
Dominions  has   been   referred  to*   as  the   "Britannic 
alliance"  and  as  "an  alliance  of  free  nations."     In  the 
Covenant  of  the  League  of  Nations  these  Dominions  are 
admitted  as  units  with  all  the  rights  of  independent 
nations.     They  cannot,  it  would  seem,  claim  this  position 
of  equality  with  independent  nations  and  still  retain  the 
right  to  discriminate  against  their  copartners  in  the  in- 
ternational organization.     Argument  from  analogy  can- 
not, it  is  true,  alone  decide  the  wisdom  of  the  preferential 
tariffs  of  the  British  Empire.      But  comparisons  sug- 
gest themselves.      In  their  economic  effect  there  is  no 
difference  between  preferences  granted  by  Canada  and 
Australia  to  Great  Britain  and  preferences  granted  by 
Brazil  to  the  United  States,  and  politically  one  may 
be  as  much  a  source  of  international  ill-feeling  as  the 
other.      Penalty   duties  levied  by  the  United   States 
against  certain    countries  for  the  purpose  of  getting 
special  favors  are  not  wholly  unlike  the  surtax  which 
New  Zealand  levies  on  all  foreign  goods  while  granting 
to  British  goods  the  lower  duties  in  the  general  tariff. 
From  an  international  standpoint  there  is  not  a  funda- 
mental difference  between  preferences   established  by 
self-governing  parts  of  the  British  Empire  and  special 
reciprocity  arrangements  between  nations. 

This  argument,  however,  is  not  pressed  as  conclusive. 

4  Reconstruction  Programme  of  the  British  Labour  Party. 

303 


COMMERCIAL  POLICY 

It  is  intended  merely  to  be  suggestive.  The  real  ques- 
tion is  one  of  desirability.  Is  it  wise  for  the  British 
Empire  to  attempt  to  monopolize  trade  by  means  of 
preferential  tariffs  ?  It  is  doubtful  whether  even  from 
Great  Britain's  standpoint  such  a  course  is  desirable. 
Arguments  based  on  political  and  sentimental  ties  are 
not  likely  to  be  convincing  with  excluded  peoples,  and 
the  resentment  against  the  British  Dominions  because 
of  their  discriminatory  tariffs  will  increase.  From  an 
international  standpoint  preferences  between  widely 
separated  and  different  political  divisions  of  an  empire 
are  as  undesirable  as  reciprocity  between  nations,  and 
if  the  British  Empire  should  insist  on  preferential  ar- 
rangements, it  is  hardly  in  a  position  to  ask  other  nations 
to  give  up  their  discriminatory  measures. 

The  crucial  question  in  considering  tariff  discrimina- 
tions is  this:  Shall  unconditional  most-favored-nation 
treatment  be  accepted  as  the  principle  to  guide  nations 
in  their  dealings  with  each  other  ?  If  the  answer  to  this 
question  is  in  the  negative,  it  will  be  a  recognition  of 
the  right  of  every  nation  to  make  such  special  or  exclu- 
sive tariff  arrangements  as  it  can.  If  the  answer  is  in 
the  affirmative,  as  it  should  be,  it  would  seem  to  be  de- 
sirable that  the  self-governing  dominions  of  the  British 
Empire,  which  are  ''nations"  so  far  as  fiscal  policy  is 
concerned  and  under  the  Covenant  of  the  League  of 
Nations  should  accept  the  responsibility  of  ''nations'' 
within  the  meaning  of  the  unconditional  form  of  the 
most-favored-nation  clause. 

Out  of  the  war  should  come  a  recognition  of  the  prin- 
ciple that  tariff  discriminations  are  contrary  to  inter- 
national wellbeing.  There  should  be  an  end  to  national 
narrowness.  An  attitude  of  justifying  one  nation's 
shortcomings  by  pointing  to  those  of  another  should  be 

304 


n 


s 


PREFERENCES 

ended.  The  subject  of  tariff  discriminations  should  be 
approached  from  the  standpoint  of  the  world's  welfare. 
The  most  that  any  one  nation  can  expect  to  have  is  equal- 
ity of  treatment.  Preferences  may  profit  for  a  time, 
but  in  the  long  rmi  they  are  injurious  to  the  parties  im- 
mediately affected,  and  they  are  clearly  objectionable 
from  the  standpoint  of  world  commercial  policy. 

Preferential  tariff  treatment  should  be  a  subject  for 
general  international  agreement.      No  one  nation  is  at 
fault,  and  none  should  be  asked  to  act  alone  in  the  aban- 
donment of  a  discriminatory  policy.     The  principle  of 
the  open  door  should  be  recognized  as  applicable  to  all 
dependent  parts  of  the  world,  and  the  unconditional 
form    and    interpretation    of    the    most-favored-nation 
clause  should  be  accepted  as  binding  on  the  British 
dominions  as  well  as  on  nations.     If  then  there  are  to 
be  any  exceptions  to  the  general  rule  of  equality  of  treat- 
ment, either  by  preferential  tariffs  or  customs  unions, 
these  should  be  passed  upon  by  an  international  con- 
ference.    But  we  must  not  stop  here.     Machinery  must 
be  devised  for  making  these  principles  effective.      The 
principle  of  equality  of  treatment  may  be  nullified,  as 
it  often  has  been,  by  open  exceptions  insisted  upon  by 
individual  nations  and  by  concealed  discriminations. 

Concealed  discriminations  constitute  one  of  the  meth- 
ods by  which  the  principle  of  equality  of  treatment  may 
be  made  ineffective.  Their  existence  has  led  some  public 
men  to  despair  of  the  general  application  of  the  princi- 
ples of  the  open  door  and  unconditional  most-favored- 
nation  treatment.  Critics  have  said  with  considerable 
justification  that  nations  that  carry  out  their  inter- 
national obligations  in  good  faith  are  at  a  disadvantage 
in  competition  with  nations  that  do  not  hesitate  to  evade 

305 


mam 


COMMERCIAL  POLICY 

the  spirit  while  accepting  the  form  of  equality  of  treat- 
ment. Concealed  discriminations,  as  has  already  to  some 
extent  been  pointed  out,  may  be  found  in  tariff  classifi- 
cations by  means  of  which  commodities  that  are  pe- 
culiarly the  product  of  one  country  are  favored  under 
an  appearance  of  equality;  by  the  undervaluation  of 
home  products  sent  to  colonies;  by  discriminatory  cus- 
toms and  sanitary  regulations;  bj'  unequal  port  and 
navigation  rules;  by  the  Government  ownership  of  land 
and  trading  companies  in  colonies;  by  exclusive  conces- 
sions to  private  corporations;  and  by  the  even  more, 
subtle  method  of  financial  and  political  control.  Faced 
with  these  conditions,  some  public  men  have  proposed  to 
abandon  the  equality-of-treatment  principle  and  to 
attempt  the  use  of  retaliatory  measures  for  the  purpose 
of  obtaining  the  removal  of  concealed  discriminations. 
In  clear  cases  such  a  step  would  no  doubt  be  justified, 
but  a  general  acceptance  of  such  a  principle  would  drive 
the  world  backward  into  the  old  vicious  circle  of  trade 
rivalries,  discriminations,  and  war.  Much  more  desir- 
able is  it  for  nations,  recognizing  the  desirability  of  the 
equality-of-treatment  principle,  to  devise  means  for  mak- 
ing it  effective  by  supplementing  it  with  machinery  that 
will  ferret  out  and  bring  into  the  open  objectionable  and 
concealed  discriminations.  Publicity  itself  will  remove 
many  of  them.  To  others  may  be  applied  penalty  duties 
in  case  negotiations  fail. 

The  most  controversial  phase  of  the  subject  of  equality 
of  treatment  relates  to  the  exceptions  that  it  is  claimed 
are  justified  under  it.  Cases  undoubtedly  exist  where 
geographical  or  political  ties,  or  the  two  together,  justify, 
even  from  an  international  standpoint,  preferential  ar- 
rangements or  a  customs  union.     Among  these  may  be 

306 


PREFERENCES 

mentioned  the  United  States,  where  the  states  are  con- 
tiguous geographically  and  bound  together  by  an  indis- 
soluble political  union ;  the  Zollverein  established  among 
the  German  States  in  1834;^  and  the  customs  union  of 
the  states  of  Australia.     A  customs  union  or  preferential 
tariffs  would  also  be  justified  among  the  states  of  Cen- 
tral America.     If  eastern  and  southeastern  Europe  is  in 
the  future  broken  up  into  small  nations  in  order  to 
satisfy  the  many  national  aspirations  of  those  peoples, 
their  vital  interests  may  require  the  adoption  of  a  com- 
mon commercial  policy  among  them.     Cuba  and  Hawaii 
are  economically  a  part  of  the  United  States  and  are 
bound  to  this  country  by  peculiar  political  ties.      To 
refuse  in  their  case  a  close  economic  union  with  the 
United  States  would  be  unjust  to  them.     Even  Algeria 
may  perhaps  reasonably  claim  inclusion  in  a  customs 
union  with  France.     Just  where  the  limit  to  the  estab- 
lishment of  customs  unions  and  preferential  arrange- 
ments shall  be  placed  depends  upon  what  is  desirable' 
from  the  standpoint  of  international   goodwill.      The 
interests  of  weak  political  units  dependent  upon  others 
and  the  fundamental  political  and  geographic  relation- 
ships should  be  carefully  weighed.     It  is  reasonable  to 
suggest,  however,  that  mere  political  ties  between  politi- 
cal units  widely  separated  is  not  alone  sufficient  to  justify 
preferences.     From  the  standpoint  of  world  harmony, 
then,  no  justification  can  be  found  for  pre^rences,  for 
example,  between  the  United  States  and  the  Philippines, 
between  Great  Britain  and  Australia,  Italy  and  Eritrea, 
or  France  and  Indo-China. 

It  is  one  thing,  however,  to  admit  that  exceptions  are 

5  It  was  gradually  extended  to  include  more  German  states  and 
■was  completed  in  1871.  Hamburg  and  Bremen  were  added  in 
October,  1888. 

307 


«! 


-   '» 


|1 


COMMERCIAL  POLICY 

necessary  and  quite  another  to  determine  what  the  ex- 
ceptions are  to  be.  If  each  nation  is  left  to  deter- 
mine independently  what  exceptions  to  the  general 
rule  should  exist,  the  general  treaty  will  put  us  little 
further  ahead  than  we  are  today.  Plausible  grounds, 
geographic  or  political,  can  always  be  alleged  for  prefer- 
ence, and  the  exceptions  will  destroy  the  rule.  Here, 
as  in  the  case  of  concealed  discriminations,  we  have  a 
problem  for  international  investigation  and  possible 
decision. 

The  need  for  investigation  and  control  with  reference 
to  concealed  discriminations  and  possible  exceptions  to 
the  equality-of-treatment  principle  makes  highly  de- 
sirable the  establishment  of  an  International  Tariff  Com- 
mission under  the  League  of  Nations.  In  the  past,  when 
bargaining  between  nations  failed  to  remove  discrimina- 
tions, or  when  negotiations  resulted  in  no  agreement  as 
to  the  scope  and  interpretation  of  the  most-favored- 
nation  clause  and  as  to  exceptions  to  the  rule  of  equality 
of  treatment,  there  w^as  a  deadlock.  The  only  recourse 
available  was  trade  war,  and  this  course,  if  pursued, 
usually  failed.  No  organization  existed  that  could  act 
as  an  arbiter  and  that  was  interested  in  the  international 
aspect  of  the  problem.  We  have  come  to  see  that  not 
only  the  nations  directly  involved,  but  every  other 
nation,  is  interested  in  the  amicable  adjustment  of  trade 
difficulties.  An  International  Tariff  Commission,  if  it 
were  merely  a  clearing  house  of  information,  would 
justify  its  existence.  Certainly  the  world  needs  an 
organization  that  will  take  up  differences  when  ordinary 
negotiations  fail  and  that  will  be  in  a  position  to  pro- 
pose a  solution  before  these  differences  lead  to  hatred  and 
hostility. 

308 


PREFERENCES 

An  International  Tariff  Commission  to  do  effective 
service  need  not  at  first  have  more  than  investigatory 
and  advisory  powers.  It  should  publish  authoritative 
texts  of  all  the  tariffs  of  the  world  in  the  important  lan- 
guages of  commerce,  as  is  already  done  by  the  Inter- 
national Union  for  the  Publication  of  Customs  Tariffs  at 
Brussels.*  It  should  investigate  concealed  discriminat- 
ing tariffs  and  regulations,  and  in  case  its  mediation 
failed  to  remove  any  discriminations  found,  it  should  be 
authorized  to  give  them  full  publicity  in  order  that  they 
might  be  corrected  either  by  penalty  duties  imposed  by 
the  countries  discriminated  against,  or  by  joint  inter- 
national action.  It  should  investigate  the  operation  of 
the  most-favored-nation  clause  and  assist  in  its  interpre- 
tation and  in  carrying  out  its  spirit  as  well  as  its  letter. 

6  The  International  Union  for  the  Publication  of  Customs 
Tariffs  was  formed  by  a  general  international  convention  signed 
at  Brussels  on  July  5,  1890.  This  convention,  to  which  the  United 
States  and  practically  all  other  countries  are  partners,  is  binding 
for  successive  periods  of  seven  years,  but  is  subject  to  revision  at 
any  time.  Any  nation  may  withdraw  by  notice  given  12  months 
before  expiration  of  any  seven-year  period. 

The  object  of  the  Union  is  to  publish  at  the  common  expense 
and  as  promptly  and  accurately  as  possible  all  customs  tariffs  of 
the  various  countries  of  the  world,  and  any  modifications  thereto 
from  time  to  time.  To  this  end  an  International  Bureau  has 
been  organized  at  Brussels,  which  is  charged  with  the  pulDlication 
of  the  International  Customs  Bulletin  in  the  following  five  lan- 
guages:    English,  French,  German,  Italian,  and  Spanish. 

In  order  to  facilitate  prompt  and  accurate  publication  of  the 
tariffs  at  the  various  countries,  each  contracting  state  agrees  to 
send  to  the  Bureau  at  Brussels  two  copies  of  its  customs  laws, 
tariffs,  and  any  regulations,  orders,  or  instructions  concerning 
application  of  its  tariff  schedules,  classification  of  goods,  or  other 
matters  affecting  the  interpretation  or  execution  of  its  tariff  laws ; 
also  copies  of  commercial  treaties,  international  conventions  or 
agreements,  and  domestic  laws  having  a  direct  bearing  on  existing 

tariffs 

The  annual  budget  of  expenditures  by  the  International  Bureau 
is  fixed  by  the  convention  at  the  maximum  of  125,000  francs 
(about  $25,000),  actual  expenses  being  shared  by  the  various 
countries  in  stated  proportions  according  to  the  amount  of  their 
commerce. 

309 


.4 


COMMERCIAL  POLICY 

It  should  study  the  economic  effect  of  proposed  excep- 
tions to  the  principle  of  equality  of  treatment  and  re- 
port whether  or  not  they  are  warranted  from  an  inter- 
national standpoint.  These  and  similar  questions  open 
an  ample  field  for  the  activities  of  an  International 
Tariff  Commission.  Without  such  machinery  the  open- 
door  principle  and  the  unconditional  most-favored- 
nation  clause,  even  if  written  into  the  final  treaties  of 
peace,  are  in  danger  of  being  evaded  and  their  spirit 
destroyed. 

An  International  Tariff  Commission  may  be  given 
another  field  of  investigation  which  would  contribute  to 
fair  tariff  making  throughout  the  world.  It  would  not 
have,  as  has  been  said,  any  power  over  the  minimum 
level  of  tariffs  adopted  by  individual  nations.  But  it 
may  be  given  power  to  collect  data  on  competitive  con- 
ditions in  each  country  and  to  publish  comparative  re- 
ports. A  nation  today  seeking  to  levy  a  fair  tariff^ 
finds  it  difficult  to  obtain  foreign  information.  If  com- 
parable data  on  prices,  costs,  and  other  conditions  were 
collected  by  an  International  Commission,  they  might  be 
used  by  individual  nations  in  formulating  such  tariffs 
and  such  anti-dumping  legislation  as  their  domestic 
needs  may  require.  In  order  to  make  such  investiga- 
tion effective,  each  nation  w^uld  have  to  agree  to  permit 
the  Commission  to  use  the  national  authority  to  collect 
information  from  which  figures  for  purposes  of  publica- 
tion might  be  deduced. 


7  See  Chapter  VII. 


CHAPTER  XVII 

FOREIGN  INVESTMENT  AND  CONCESSIONS 

Foreign  investments  —  Of  Great  Britain  —  Of  France  —  Of  Ger- 
many—  Of  the  United  States  —  Use  of  foreign  investments 
in  highly  developed  countries  —  Alien  Property  Custodian  in 
the  United  States  —  German  world-wide  control  of  non- 
ferrous  metals  —  German  finance  in  Italy  —  Policy  to  be  pur- 
sued —  The  alliance  between  export  trade  and  foreign  invest- 
ments—  Methods  making  it  effective  —  Need  for  inter- 
national regulation  —  Political  significance  of  the  exploita- 
tion of  undeveloped  regions  —  Exclusive  concessions  and  the 
open  door  —  The  Congo  —  The  British  in  the  Caribbean  — 
Conflicts  between  financial  interests  and  weak  Governments  — 
British  in  Egypt  —  French  in  Morocco  —  Haiti  and  Domin- 
ican Eepublic  —  Italy  in  Tripoli  —  The  Boer  War  —  Political 
aims  and  finance  —  Kussia  in  Persia — The  Bagdad  Railway 
—  Concessions  in  China  —  Manchuria  —  The  Twenty-One  De- 
mands—  China  in  the  world  politics  of  the  future  —  Neces- 
sity for  international  supervision  —  Failure  of  imperialism  — 
Of  the  laissez-faire  policy  —  Nature  of  international  control. 

In  all  communities  that  have  attained  a  fair  degree  of 
civilization  some  of  the  people  are  able  to  save  something 
from'  their  income  for  permanent  investment.  If  the 
community  in  which  they  live  is  growing  and  developing, 
if  it  is  diversifying  its  industries,  it  is  likely  that  oppor- 
tunity for  profitable  investment  can  easily  be  found  at 
home.  If,  on  the  contrary,  the  community  is  already 
highly  industrialized  and  public  improvements  well  de- 
veloped, investments  there  will  yield  a  relatively  lower 
rate  of  interest  than  in  less  advanced  parts  of  the  world. 
Many  investors,  therefore,  in  Great  Britain,  France, 
Germany,  Belgium,  Switzerland,  and  The  Netherlands, 
frequently,  through  large  financial  houses,  have  placed 
their  savings  in  enterprises  in  foreign  countries.  The 
great  majority  of  these  investments  are  merely  commer- 

311 


'* 


COMMERCIAL  POLICY 

cial  ventures  with  no  political  significance ;  nevertheless, 
the  world-wide  interlocking  of  financial  control  and  its 
use,  particularly  in  countries  with  weak  Governments, 
to  further  political  ambitions  are  facts  of  first  im- 
portance in  world  affairs. 

For  very  obvious  reasons  it  is  difdcult  even  to  estimate 
the  amount  of  capital  invested  in  countries  foreign  to 
the  investor.  Estimates  have  been  made  by  capitaliza- 
tion of  incomes  reported  on  income-tax  returns  as  com- 
ing from  abroad,  by  tabulating  security  issues,  and  by  a 
study  of  exports,  imports,  interest,  freight,  and  other 
factors  in  trade.^  Each  of  these  methods  has  its  defects, 
but  estimates  thus  arrived  at  are  at  least  suggestive  of 
the  significance   of   investments   in   world   commercial 

policy. 

The  Federal  Trade  Commission,  following  the  investi- 
gations made  by  Sir  George  Paish,  concluded  that  British 
investments  outside  the  British  Isles,  that  is,  m  the 
Dominions,  the  colonies,  including  India,  and  foreign 
countries,  amounted  at  the  outbreak  of  the  war  to  not 
less  than  $17,500,000,000,  and  very  probably  to  $20,- 
000,000,000.2     A  large  percentage  of  these  investments 
is  in  conservative  ventures,  such  as  railroads,  municipal 
improvements,  telegraphs,  canals,  port  works,  and  banks. 
This  conservatism  is  shown  by  a  classification  of  the 
$100,000,000  worth  of  American  stocks  and  bonds  offered 
in  1916  as  partial  pledge  for  the  war  loan  floated  in  this 
country.      There  were  360  different  railway  securities, 
88  public-utility,  47  industrial  and  miscellaneous,  and 
eight  municipal.      The  railroads  of  the  United  States, 

1  Federal  Trade  Commission,  Cooperation  in  American  Export 
Trade  (1916),  vol.  i,  p.  67. 

2  Ibid.,  p.  71. 

312 


FOREIGN  INVESTMENT 

in  fact,  were  formerly  dependent  in  a  large  degree  upon 
British   capital   for   their   development       To   a   much 
greater  exLt  this  is  still  the  case  with  the  railway 
systems  of   Argentina.      But   the   investors   of    Grea 
Britain  by  no  means  confine  themselves  to  one  form  ot 
investment.     British  capital  enters  a  variety  of  enter- 
prises  all  over  the  world.     It  is  invested  m  mines,  nitrate 
beds,  oil  wells,  plantations,  mortgages,  and  manuf actur- 
ing  concerns.     British  investments  in  rubber  p  anta  ions 
amount  probably  to  $350,000,000,  and  in  tea  plantations 
to  $150,000,000.      Britain's  influence  as  an  investing 
country  is  further  enhanced  by  the  fact  that  her  capital 
controls  many  enterprises  in  which  a  portion  of  the  capi- 
tal  is  furnished  by  citizens  of  other  nations. 

Next  to  Great  Britain,   France  has  long  been  the 
largest  foreign  investor.      French  holdings  of  foreign 
securities  in  1910  have  been  placed  at  a  minimum  ot 
$8  000  000  000.^     This  excludes  French  investments  not 
represented  by  stocks  and  bonds.     It  is  conservative  to 
sav  therefore,  that  the  foreign  investments  of  the  French 
at  the  o^^^^^^^^    of  the  war  were  roughly  $9,000,000,000. 
The  French  are  very  conservative  investors,  confining 
themselves    primarily    to    Government    and    municipal 
issues  which  bear  a  fixed  rate  of  interest.     Their  invest- 
ments are  well  distributed  over  the  world,  although  the 
most  important  field  by  far  has  been  Russia       At  the 
becrinning  of  the  war  they  held  approximately  $1,75U,- 
000,000  in  Russian  securities.     Their  capital,  however 
was  invested  also  in  Egypt,  Austria-Hungary,  South 
America,  Spain,  Turkey  and  Italy. 

German  foreign  investments  at  the  time  of  the  out- 
break of  the  war  were  rapidly  approaching  the  French 
in   amount.      They  were   estimated   roughly   at   from 


8  Ibid.,  p.  71. 


313 


COMMERCIAL  POLICY 


$7,500,000,000  to  $8,500,000,000.^  Germany 's  influence  in 
foreign  investments  was  due,  not  so  much  to  the  volume 
of  investments,  as  to  the  way  in  which  they  were  used 
to  advance  German  commercial  and  political  interests. 
Her  investments  were  widely  distributed  and  in  enter- 
prises more  speculative  than  those  sought  by  the  British 
and  the  French.  They  were  not  infrequently  made  in 
remote  places  where,  although  the  risks  were  greater, 
the  opportunities  of  reward  were  larger.  They  were 
made  deliberately  with  the  object  of  building  up  trade 
and  frequently  had  an  industrial  and  political  as  well 
as  a  financial  significance.  A  leading  German  authority 
says  :^ 

In  this  connection  it  must  be  remen^bered  what  important 
political  results  have  been  brought  about  by  the  granting  or 
refusing  of  loans  to  foreign  States  and  to  what  extent  the 
Home  Government  may  use  for  political  purposes  its  power 
of  permitting  or  prohibiting  the  issue,  official  listing  and 
pledging  of  foreign  securities,  especially  at  times  when  the 
foreign  State,  either  because  of  the  closing  or  overstocking  of 
foreign  markets,  is  confined  to  our  exclusive  assistance  and 
when  it  is  in  our  power  to  inflict  great  damage  on  it  by  our 
refusal  or  prohibition.  The  skirmishes  of  the  political  ad- 
vance posts  are  fought  on  financial  ground,  though  the  selection 
of  the  time  and  the  enemy,  as  well  as  the  manner  in  which 
these  skirmishes  are  to  be  fought,  depends  upon  those  respon- 
sible for  the  direction  of  our  foreign  policy.  Much  more  than 
ever  before,  we  Germans  will  have  to  bear  in  mind  that  in- 
dustrial contracts,  commercial  enterprises,  and  capital  invest- 
ments are  conveying  from  one  country  to  another  not  only 
capital  and  labor  but  also  political  influence. 

The  Bagdad  Railway  w^as  Germany  *s  most  important 
single  venture.     A  large  amount  of  capital,  however, 

4  IMd.,  p.  72. 

5  J.  Riesser,  Die  Deutsche  GrossbanTcen  und  ihre  Konzentration 
(Jena,  1910),  p.  401. 

314 


FOREIGN  INVESTMENT 


was  invested  in  electrical  and  chemical  industries  in 
foreign  countries,  in  shipbuilding  in  Russia,  in  engineer- 
ing and  electrical  enterprises  in  Russia  and  South 
America,  in  iron  mining  in  Scandinavia  and  Spain,  and 
in  gold  in  Siberia. 

The  United  States  was  a  debtor  nation  before  the  war 
—  was  indeed  the  world's  greatest  borrower.      It  was 
estimated  by   Sir    George   Paish   in   1910   that   about 
$6,500,000,000  of  foreign  capital  was  invested  in  the 
United  States,  somewhat  over  half  of  it  being  British 
and  most  of  the  rest  German,  Dutch  and  French.     Even 
at  that  time,  however,  Americans  had  invested  about 
$2,000,000,000  abroad  —  $700,000,000  in  Mexico,  $500,- 
000,000  in  Canada,  $350,000,000  in  Europe,  and  smaller 
amounts  in  Cuba  and  Porto  Rico,  South  America,  China 
and   Japan,    the   Philippines,    and    Central    America.* 
Foreign  loans  were  increasing  rapidly.      John  Barrett 
estimated  in  1913   that  Americans  had  invested  over 
$1,000,000,000  in  Mexico,  and  the  Canadian  Manufac- 
facturers'  Record  estimates  that  American  interests  in 
Canada  amounted  to  about  that  much  at  the  beginning 
of  1917.^     In  Mexico  two-thirds  of  the  investment  is  in 
mines.     In  Canada,  before  the  war,  it  was  in  a  variety  of 
industrial  enterprises,  but  since  that  time  it  has  gone 
largely  into  Canadian  securities.      The  Singer  Sewing 
Machine  Company  and  the  International  Harvester  Com- 
pany are  large  exporters  of  capital  to  Europe.      Other 
cases  of  American  investments  abroad  have  already  been 
cited.® 

During  the  war  large  cash  advances  were  made  and 
credits  established  for  the  Allies  which  made  the  United 


«  Charles  F.  Speare,  North  American  Beview,  July,  1909. 
T  Manufacturers'  Record,  December  28,  1916. 
8  See  Chapter  XI. 

315 


COMMERCIAL  POLICY 


States  a  creditor  nation.      These  advances  and  credits 
between  April  24,  1917,  and  November  15,  1918,  were:^ 


Country 


Belgium 

Cuba 

France 

Great  Britain 

Greece 

Italy 

Liberia 

Bumania 

Eussia 

Serbia 

Total 


Credits 
Established 

(000 
omitted) 


$192,520 

15,000 

2,445,000 

3,945,000 

15,790 

1,210,000 

5,000 

6,667 

325,000 

12,000 

$8,171,977 


Cash 
Advances 

(000 
omitted) 


$173,380 

10,000 

1,970,000 

3,696,000 

i,0ol,o66 


187,730 
10,605 

$7,098,715 


Other 

Charges 

against 

Credits 

(000 

omitted) 


$200,000 
15,790 

5,666 
$220,790 


Balances 

under 

Established 

Credits 

(000 

omitted) 

$19,140 

5,000 

275,000 

249,000 

159,666 
5,000 
1,667 

137,270 
1,395 

$852,472 


Foreign  investments  when  made  in  a  country  with  a 
strong  government  such  as  the  United  States  are  not 
ordinarily  accompanied  by  any  political  or  other  ex- 
traneous complications.  They  are  usually  in  stocks  and 
bonds  of  public  utilities  or  industrial  corporations  and 
are  nothing  more  than  financial  ventures.  In  so  far  as 
this  is  the  case,  they  are  desirable.  Many  of  our  largest 
enterprises  have  been  made  possible  largely  through 
foreign  capital.  Foreign  investments  in  the  United 
States  have  not,  as  a  general  thing,  been  made  with 
ulterior  purposes.  Individuals  have  simply  sought  to 
profit  by  the  larger  financial  returns  yielded  by  enter- 
prises in  this  country. 

Foreign  capital,  however,  has  been  invested  in  vital 
commercial  enterprises  of  even  the  most  highly  developed 
countries  with  the  ulterior  purpose  of  moulding  busi- 

* 

»  Annual  Eeport  of  the  Secretary  of  the  Treasury,  1918,  p.  36. 

316 


FOREIGN  INVESTMENT 

ness  or  even  political  conditions  or  of  gaining  unfair 
trade  advantages  over  competitors.  In  such  cases,  which, 
it  is  true,  are  not  many,  the  investments  become  matters 
of  national  concern.  The  possibilities  and" significance 
of  building  up  influence  with  a  foreign  country  through 
investments  were  scarcely  thought  of  until  the  war  dis- 
closed the  extent  to  which  German  interests  had  insinu- 
ated themselves  into  the  industrial  life  of  the"  United 
States  and  other  Allied  countries. 

After  the  United  States  declared  war  on  Germany, 
Congress  provided  for  the  appointment  of  an  Alien 
Property  Custodian  with  power  to  take  over  and  hold  as 
trustee  the  property  in  the  United  States  of  *' enemies'* 
as  defined  by  law.^«     He  took  over  ''enemy"  property 
valued  at  over  $800,000,000.^^      More  significant  than 
the  amount,  however,  is  the  use  to  which  some  of  these 
investments  were  put.     The  Alien  Property  Custodian 
states,  for  example,  that  German  influence  insinuated 
itself  into  certain  American  non-ferrous  metal  industries 
by  the  control  of  the  principal  metal  and  smelting  com- 
panies in  the  United  States,  either  by  complete  owner- 
ship of  stock  or  such  partial  ownership  as  to  give  Ger- 
man interests  substantial  representation  on  the  boards 
of   directors.      In   fact,   the   German   control   of^  non- 
ferrous  metals  was  world-wide.      Speaking  of  it  the 
British  Board  of  Trade  Journal  says  :^^ 


10  The  duties  and  powers  of  the  Alien  Property  Custodian  are 
prescribed  in  the  Trading-with-the-Enemy  Act,  and  Paragraphs 
XXIX  to  XXXIV,  both  inclusive,  of  the  Executive  Order  under 
date  of  October  12,  1917,  and  in  the  Executive  Order  under  date 
of  October  29,  1917.  For  an  account  of  the  operations  ot  the 
AHen  Property  Custodian  see,  in  this  series,  Louis  E.  Van  Norman, 
War  Time  Control  of  Commerce.  .^     ,,  m, 

11  A.  Mitchell  Palmer,  * '  German  Business  our  Indenmity,  i  he 
Nation's  Business,  February,  1919,  p.  26.  ^.^       -n 

^2  Board  of  Trade  Journal,  October  31,  1918,  p.  545.     For  an 

317 


COMMERCIAL  POLICY 


FOREIGN  INVESTMENT 


Before  the  War  the  world's  market  for  non-ferrous  metals 
was  largely  controlled  by  a  group  of  German  metal  companies, 
engaged  primarily  in  buying  metals  or  in  acting  as  selling 
agents  for  producers.  These  companies  were  closely  connected 
by  stock  control,  the  inter-ownership  of  stock,  interlocking 
directorates  or  joint  syndicates,  their  relations  being  of  such 
a  nature  as  to  lead  to  a  common  policy  in  respect  to  the  pur- 
chase and  sale  of  metals. 

The  most  important  of  these  concerns  was  the  Metallgesell- 
schaft,  of  Frankfort-on-Main,  which  combined  with  certain 
German  metallurgical  and  financial  interests  to  found  in  1910 
the  Metallbank  and  Metallurgische  Gesellschaft,  of  Frankfort- 
on-Main,  with  a  capital  of  £2,000,000.  This  last-named 
organisation,  either  directly  or  through  its  constituent  con- 
cerns, had  by  the  outbreak  of  war  established,  or  acquired, 
controlling  financial  interests  in  metal  dealing,  mining  or 
working  companies  or  chemical-metallurgical  companies  in 
Germany,  Austria,  the  United  Kingdom,  France,  Belgium, 
Switzerland,  Holland,  Spain,  Australia,  Africa,  Mexico,  and 
Italy. 

Distinct  from  the  Metallgesellschaft  group  of  companies,  but 
closely  associated  with  the  same  interests  and  with  each  other 
in  various  syndicates  and  combinations,  were  Beer  Sond- 
heimer  and  Company,  of  Frankfort,  with  interests  in  com- 
panies in  Germany,  Austria,  Italy,  Belgium,  France,  and  the 
United  States ;  and  Aron  Hirsch  and  Company,  of  Halberstadt, 
which  also  had  subsidiary  companies  in  various  countries. 

As  illustrations  of  the  activities  of  the  German  group  of 
associated  undertakings  there  may  be  mentioned  the  Inter- 
national Lead  Convention  and  the  International  Spelter  Con- 
vention, both  of  which  were  formed  by  the  Metallgesellschaft. 
The  position  of  the  German  interests  was  so  strong  that  they 
were  able  to  force  the  smelters  of  these  metals  in  other  coun- 
tries into  those  conventions,  which  regulated  the  world's 
prices;  and  by  controlling  the  market  the  German  interests 
were  able  in  some  cases  to  restrict  the  development  of  the 
smelting  of  the  metals  elsewhere  than  in  Germany. 

The  position  which  the  German  companies  occupied  before 


account  of  this  conirol  as  it  affected  the  United  States  see,  in  this 
series,  George  Otis  Smith,  The  Strategy  of  Minerals. 

318 


the  War  in  respect  of  various  metals  had  been  attained  in  a 
variety  of  ways.  In  some  cases  there  was  actual  ownership 
of,  or  participation  in,  mining  companies ;  in  others  there  were 
long-period  contracts  for  the  purchase  of  the  output  of  mines ; 
there  were  interests,  frequently  of  a  controlling  nature,  in  re- 
fining and  smelting  companies;  sole  selling  agencies  of  refined 
metals  had  been  secured  in  some  instances;  and  there  were 
international  price  agreements,  of  the  kind  already  referred 
to,  into  which  producers  and  traders  had  been  forced  by  the 
great  competitive  strength  of  the  German  groups. 

The  infiuenee  of  the  German  metal  organisations  was  very 
extensive  in  the  case  of  zinc  and  lead  (e.  g.,  they  controlled 
by  long-period  contracts  the  output  of  Australian  zinc  con- 
centrates, the  raw  material  of  spelter) ;  and  there  are  indica- 
tions that  endeavors  were  being  made  at  the  time  of  the  out- 
break of  war  to  acquire  a  controlling  influence  over  other 
metals,  particularly  copper  and  nickel. 

In  her  attempt  to  use  financial  control  to  further  her 
own  interest  Germany  invested  not  only  her  own  capital, 
but  that  of  other  countries  —  often  of  the  very  countries 
which  it  was  Germany's  aim  to  dominate  and  exploit. 
The  classic  example  of  this  is  the  case  of  the  Banca  Com- 
merciale  Italiana,  founded  at  Milan  in  1894,  by  means 
of  which  Germany  gained  control  of  the  electrical,  ship- 
ping and  many  other  important  industries  of  Northern 
Italy,  although  the  actual  amount  of  German  capital 
involved  was,  after  the  system  had  become  perfected, 
very  small.^^ 

The  German  policy  of  expansion  resulted  in  the  estab- 
lishment of  industrial  colonies  in  the  heart  of  foreign 
countries,  especially  in  such  partially  developed  regions 
as  South  America,  Australia,  and  the  Far  East.  These 
colonies  maintained  a  connection  with  the  home  country, 
and  gave  assistance  to  German  aims.  A  subsidized 
merchant  marine,  a  network  of  foreign  branch  banks, 

13  See  Ezio  M.  Gray,  Guerra  senza  sangue,  Florence,  1916. 

319 


I 


COMMERCIAL  POLICY 


foreign  branch  factories,  cartels  which  control  the 
market,  specialized  tariffs  and  bargaining  commercial 
treaties,  lower  prices  and  transportation  rates  for  ex- 
ported articles  —  all  these  devices  have  been  used 
effectively  by  the  Germans.  They  have  also  been  used 
by  other  nations,  but  they  formed  a  larger  part  of  the 
national  policy  of  Germany  than  of  any  other  country 
with  the  single  exception  of  Japan. 

The  dangers  to  the  Allies  incident  to  Germany's  con- 
trol of  economic  activities  in  their  respective  countries 
were  recognized  early  in  the  war,  and  drastic  measures 
were  determined  upon  by  the  Paris  Economic  Conference 
of  June,  1916.  It  was  there  agreed  that  the  Allies  should 
prevent  subjects  of  the  Central  Powers  from  exercising 
within  their  borders  **  industries  or  professions  which 
concern  national  defense  or  economic  independence.^* 
As  a  war-time  measure  such  a  policy  is  justified,  but  it 
should  have  no  place  in  a  peace  programme.  Financial 
boycott  is  as  inconsistent  with  permanent  peace  as  trade 
boycott.  In  Great  Britain  the  Secretary  of  State  for 
the  Colonies  excluded  foreign  capital  from  investment  in 
the  rubber  lands  of  the  Federated  Malay  States.  Speak- 
ing of  this  case,  the  British  Committee  on  Commercial 
and  Industrial  Policy  after  the  War  stated  that  obstacles 
should  not  be  placed  in  the  way  of  foreign  capital's  as- 
sisting in  developing  the  resources  of  the  Empire.^^  Free 
investment  of  capital  is  desirable  in  all  countries 
from  a  national  and  particularly  from  an  international 
point  of  view.  Publicity  will  serve  as  a  check  to 
unfair  use  of  investments.  A  few  exceptional  cases  of 
essential  materials  or  products  exist  in  which  a  nation 
may  be  justified  in  retaining  complete  financial  control 

1*  Appendix  II. 

15  British  Blue  Book,  Cd.  9035  (1918),  p.  30. 

320 


FOREIGN  INVESTMENT 

in  its  own  hands.  Such  a  ruling,  however,  should  apply 
to  all  foreign  capital,  not  to  that  of  a  particular  country. 
The  conclusion  of  the  British  Committee  was  as  follows  :^* 

As  regards  Alien  interests  in  the  sources  of  supply  within 
the  Empire  we  think  that  some  Government  control,  which  may 
take  various  forms  according  to  the  circumstances  of  each  case, 
will  be  necessary  in  future  in  respect  of  a  limited  number  of 
commodities  of  vital  military  importance.  Apart  from  this 
limited  class  of  cases  we  think  that  it  would  be  unwise  to  aim 
at  the  exclusion  of  foreign  (other  than  present  enemy)  capital 
from  sharing  in  the  development  of  the  material  resources  of 
the  Empire. 

More  important  than  the  national  problem  that  may 
arise  from  the  investment  of  alien  capital  in  a  **key'^ 
industry  for  ulterior  purposes  is  the  international  prob- 
lem arising  out  of  the  close  alliance  existing  between 
export  trade  and  foreign  investment.  The  export  of 
capital,  as  is  well  known,  has  frequently  been  followed 
by  the  export  of  goods  from  the  investing  country.  The 
interlocking  of  financial  and  industrial  interests,  not  un- 
common in  all  the  leading  commercial  nations,  character- 
ized in  particular  the  economic  life  of  Germany.  The 
German  banks,  such  as  the  Deutsche  Bank  and  the 
Dresdner  Bank,  were  represented  directly  in  the  manage- 
ment of  hundreds  of  industrial  concerns.  *' Shortly  be- 
fore the  present  war  the  directors  of  the  Dresdner  Bank 
were  on  the  boards  of  nearly  200  industrial  companies. 
In  1910  the  Deutsche  Bank  was  represented  on  the 
boards  of  116  German  and  foreign  concerns,  some  of 
which  are  dominating  factors  in  leading  German  and 
international  cartels  and  combinations.''^^  This  close 
relationship  between  finance  and  production   resulted 


i«  Ihid.,  p.  61. 

IT  Federal  Trade  Commission,  op.  eit,  vol.  i,  p.  62. 

321 


COMMERCIAL  POLICY 

naturally  in  the  use  of  investments  in  the  promotion  of 
German  foreign  trade.  Nor  was  this  practice  confined 
to  Germany.  Large  financial  houses  in  other  countries 
made  their  loans  for  the  development  of  foreign  enter- 
prises dependent  upon  the  purchase  of  supplies  and  con- 
struction materials  from  industries  in  their  own  country. 
Mr.  Hurley  cites  the  case  of  the  French  banking  house 
of  Perrier  and  Company,  which  had  ''made  a  loan  of 
$10,000,000  to  the  State  of  Minas  Geraes  (Brazil),  the 
fund  to  be  loaned  out  in  turn  by  the  State  to  various 
municipalities  for  the  perfection  of  municipal  improve- 
ments, such  as  tramways  and  electric  lighting  plants. 
The  contracts  executed  between  the  State  as  lender  and 
the  municipality  as  borrower  stipulated  that  when  other 
considerations  were  equal  preference  should  be  accorded 
by  the  municipality  to  French  materials,  and  that  in 
such  purchases  the  municipalities  should  avail  themselves 
of  the  mediation  of  the  house  of  Perrier  &  Co. '  ''^ 

The  rivalry  of  the  financial  interests  of  nations  for  in- 
vestments, loans,  and  concessions  in  foreign  countries, 
particularly  in  undeveloped  regions,  has  been  keener 
because  of  the  opportunities  thus  afforded  to  sell  goods. 
Many  factors  contribute  to  make  it  probable  that  the 
country  that  finances  a  railroad,  mines,  oil  fields,  manu- 
facturing, tramways,  electric  power  plants,  and  other 
municipal  improvements  in  another  country  will  also 
provide  the  constmction  materials  and  supplies.  Steel 
rails,  machinery,  electrical  apparatus,  and  many  other 
products  are  more  often  than  not  influenced  in  their 
sale  by  the  investment  of  capital.  The  influence  may  be 
merely  personal.      A  citizen  of  the  investing  country 

18  Edward  N.  Hurley,  '*  Banking  and  Credit  in  Argentina, 
Brazil,  Chile,  and  Peru,''  Bureau  of  Foreign  and  Domestic  Com- 
merce, Special  Agents  Series,  No.  90  (1914),  p.  47. 

322 


i 


FOREIGN  INVESTMENT 

usually  becomes  manager  of  private  enterprises  which 
are  developed  abroad,  or  if  the  capital  is  loaned  to  a 
Government  in  an  undeveloped  region,  the  engineer  is 
frequently  a  man  from  the  lending  country.  It  is 
natural  that  he  should  favor  with  orders  those  firms  that 
he  has  known  in  his  home  land.  This  personal  factor, 
however,  is  not  as  important  as  others.  In  some  cases 
contracts,  similar  to  the  one  of  Perrier  and  Company 
already  mentioned,  are  insisted  upon  at  the  time  the  loan 
is  granted,  provided  that  all  construction  materials, 
machinery,  and  supplies  be  purchased  from  firms  in  the 
investing  country.  An  even  more  decisive  factor  which 
results  in  trade  following  investments  is  the  interlocking 
of  financial,  industrial,  and  transportation  interests.  A 
British  director  in  an  Argentina  railway,  for  example, 
may  be  also  a  director  or  stockholder  in  a  concern  in 
Great  Britain  manufacturing  steel  rails.  He  is  in  a 
position  to  insist  that  the  railway  purchase  from  his  com- 
pany. When  the  complex  interrelationships  which  exist 
in  world  trading  are  recalled,  it  is  not  surprising  that 
foreign  investments  have  many  times  had  determining  in- 
fluences on  trade.  One  or  two  statements  by  witnesses 
before  the  Federal  Trade  Commission  may  serve  to  make 
this  concrete. 

In  the  Argentine,  in  particular,  we  have  encountered  serious 
difficulty  in  selling  to  the  railroads,  as  these  are  largely  con- 
trolled by  British  financial  interests.  Every  possible  prefer- 
ence is  given  to  British  materials  —  even  though  substantial 
economies  may  be  possible  by  employing  American  construc- 
tion methods  and  materials.  The  consulting  engineers  in 
London  receive  a  percentage  on  aU  materials  purchased  on 
designs  which  they  prepare  or  which  may  be  prepared  by  the 
engineers  of  the  railroad  and  are  approved  by  them.  Their 
antagonism  toward  everything  American  even  led  them  in  one 
case  to  adopt  a  very  expensive  and  antiquated  construction, 

323 


COMMERCIAL  POLICY 


using  local  materials,  rather  than  approve  a  design  which  we 
submitted  and  which  would  have  effected  a  saving  of  upward 
of  $100,000.  Our  design  was  approved  and  urgently  recom- 
mended by  the  chief  and  assistant  engineers  in  Buenos  Aires, 
but  their  recommendations  were  promptly  overruled  by  the 
consulting  engineers  and  the  directors  in  London.^' 

In  several  South  American  countries  and  in  Mexico,  English, 
German,  and  American  investments  in  industrial  plants,  rail- 
roads, and  public  utilities,  insure  in  a  large  measure  orders  for 
machinery  and  plant  equipment  being  placed  with  the  mer- 
chants or  manufacturers  of  the  country  having  the  investment. 
For  instance,  the  investment  of  Chicago  capital  in  packing 
houses  in  Buenos  Aires  insures  the  installation  of  American 
machinery  in  these  plants,  while  houses  controlled  by  English 
capital  are  equipped  with  English  machinery.  In  Chile, 
American  mining  interests  buy  American  machinery,  often  at 
a  higher  price  than  similar  machinery  could  be  bought  for  in 
Europe.  Our  investments  in  Mexico,  as  much  as  our  proxim- 
ity to  that  market,  is  the  reason  for  our  having  the  lion's 
share  of  the  foreign  trade  of  that  country.^^ 

Governments,  even,  have  used  their  control  over  finance 
to  further  trade  of  their  citizens.  Not  long  ago  the 
French  Government  threatened  to  withdraw  the  listing 
privilege  from  Turkish  State  bonds  unless  certain  con- 
tracts were  awarded  French  industry.^^ 

The  export  of  capital  is  a  necessary  and  legitimate 
phase  of  the  foreign  activities  of  a  modern  commercial 
nation.  The  promoters  of  enterprises  abroad  will  natur- 
ally be  influenced  for  one  reason  or  another  to  place  many 
of  their  orders  at  home.  Foreign  investments,  however, 
particularly  those  in  undeveloped  countries,  may  be  used 
unfairly  against  competitors.  The  unfair  practices  and 
methods  of  competition  already  discussed"  may  be  made 

19  Federal  Trade  Commission,  op.  cit.,  vol.  i,  p.  74. 

20  Ibid.,  p.  75. 

21  J.  Riesser,  op.  cit. 

22  See  Chapter  XII. 

324 


FOREIGN  INVESTMENT 

more  effective  because  of  financial  strength.  Com- 
petitors in  a  foreign  market  may  be  eliminated  by  'Hying 
contracts"  or  ^^ full-line  forcing."  Financial  power 
may  enable  a  concern  to  bribe,  entice  away  employees, 
and  indulge  in  espionage.  It  may  enable  a  concern  to 
destroy  a  weak  competitor  by  means  of  price  cutting. 
In  these  and  similar  cases  investments  may  be  used  un- 
fairly, and  they  should,  therefore,  come  under  the  same 
system  of  international  regulation  already  found  de- 
sirable in  other  economic  matters. 

Investments,  loans,  and  concessions  have  a  political  as 
well  as  a  commercial  significance.  They  have  played  a 
large  part  in  the  diplomatic  contests,  international  rival- 
ries, and  wars  which  perplexed  the  world  for  almost  half 
a  century  before  the  Great  War  and  were  unquestionably 
one  of  the  leading  causes  of  the  epochal  struggle.  H.  N. 
Brailsford  estimates  that  the  motives  that  led  to  the 
increase  of  British  and  German  armaments  may  be  ap- 
portioned thus:^^ 

50  per  cent,  or  less  for  the  settlement  of  the  question,  Who 
shall  exploit  Morocco?;  25  per  cent,  or  more  for  the  privilege 
of  building  a  railway  to  Bagdad  and  beyond  it;  25  per  cent, 
or  more  for  the  future  eventualities  which  remain  unsettled  — 
the  fate  of  the  Portuguese  Colonies  in  Africa,  and  the  destinies 
of  China. 

Speaking  of  this  same  problem  G.  Lowes-Dickinson,  a 
responsible  British  scholar,  says:^* 

So  long  as  the  exploitation  of  undeveloped  countries  is 
directed  by  companies  having  no  object  in  view  except  divi- 
dends, so  long  as  financiers  prompt  the  policy  of  Governments, 
so  long  as  military  expeditions,  leading  up  to  annexations,  are 

23  H.  N.  Brailsford,  The  War  of  Steel  and  Gold,  p.  247 

2*G.  Lowes  Dickinson,  The  European  Anarchy  (1916),  p.  132. 

.325 


COMMERCIAL  POLICY 


undertaken  behind  the  back  of  the  public  for  reasons  that 
cannot  be  avowed,  so  long  will  the  nations  end  by  war  where 
they  have  begun  by  theft.     .     .    . 

To  these  statements  may  be  added  that  of  an  American 
naval  officer.    He  said:^'^ 

It  is  the  great  amount  of  unexploited  raw  material  in  terri- 
tories politically  backward,  and  now  imperfectly  possessed  by 
the  nominal  owners,  which  at  the  present  moment  constitutes 
the  temptation  and  the  impulse  to  war  of  the  European  states. 

The  export  of  capital  or  the  control  of  land  through 
exclusive  trading  companies  is  one  of  the  most  ingenious 
ways  of  nullifying  the  open-door  principle.  Equality 
of  treatment  may  be  granted  in  import  and  export  tariffs 
and  still  the  right  to  exclusive  trading  may  be  established 
in  favor  of  one  country  by  the  granting  of  concessions, 
by  land  control,  or  other  restrictions.  In  the  General 
Act  of  the  Berlin  Congress  of  1885  it  vs^as  agreed  that  in 
the  Basin  of  the  Congo  the  trade  of  all  nations  should 
''enjoy  complete  freedom."  Discriminatory  dues  on 
vessels  navigating  the  Congo  and  its  affluents  were  also 
forbidden.  The  Congress,  in  fact,  established  the  open 
door  to  all  nations.  But  the  Congo  Free  State  decreed 
in  1885  that  all  * '  vacant  lands ' '  'were  its  property.  As  a 
result  of  the  interpretation  of  this  decree  and  the  pro- 
mulgation of  others,  the  Government  assumed  absolutely 
proprietary  rights  over  almost  the  whole  of  the  country. 
Rights  to  trade  and  concessions  were  granted  to  private 
trading  companies,  and  the  State  itself  entered  into  part- 
nerships with  others  for  the  purpose  of  exploiting  the 
resources.  The  State  exercised  an  absolute  and  exclu- 
sive ownership  over  virtually  the  whole  of  the  land.     It 

25  Rear-Admiral  A.  T.  Mahan,  Armaments  and  Arbitration, 
p.  110. 

326 


FOREIGN  INVESTMENT 


assumed  the  authority  to  dispose  of  all  the  products  and 
prosecute  any  one  who  took  any  products  from  the  land.^® 
With  the  exception  of  the  villages,  the  whole  country 
came  to  belong  to  the  financial  companies  or  to  the  Congo 
Free  State.^^  The  natives  were  forbidden  to  sell  rubber 
and  ivory  to  private  factories  and  were  compelled  to 
bring  specific  amounts  to  the  agents  of  the  conces- 
sionaires on  penalty  of  death.^® 

The  charges  against  the  Congo  Free  State  were,  first, 
those  of  inhuman  conduct  toward  the  natives,  and  second, 
that  the  methods  employed  to  exploit  the  State  lands  and 
the  exclusive  grants  to  concessionaires  nullified  the  open- 
door  principle.  It  may  be  added  here  that  the  French 
in  the  part  of  the  Congo  which  they  controlled  went  to 
the  length  of  excluding  foreign  houses,  and  a  similar 
attempt  was  made  on  the  Ivory  Coast.^^ 

A  more  recent  case  of  the  proposed  exclusion  of  for- 
eign capital  from  a  colony  comes  from  the  Caribbean.^® 
The  correspondent  of  the  London  Times,  writing  from 
Kingston,  Jamaica,  in  1917,  spoke  of  the  possibilities  of 
the  colonies  of  the  Crown  in  the  Caribbean  Archipelago. 
He  pointed  out  that  they  are  rich  in  mineral  deposits, 
the  most  of  which  have  not  been  exploited.  He  then 
added  that  it  should  not  be  left  to  American  capitalists 
and  others  to  develop  the  gold,  diamond,  bauxite,  and 
other  resources   of  the  magnificent  colony   of   British 

26  M.  Vandervelde  in  Belgian  House  of  Eepresentatives,  Feb- 
ruary 20,  191C.  The  five-days  Congo  debate  in  the  Belgian  House 
is  printed  as  Sen.  Doc.  139,  59th  Cong.,  2d  Sess. 

27  From  Eeport  of  Commission  of  Inquiry,  quoted  by  M.  Vander- 
velde. 

28  E.  D.  Morel,  King  Leopold's  Rule  in  Africa,  pp.  36-44.  A 
number  of  letters  substantiating  his  charges  are  quoted  by  Mr. 
Morel. 

29  J.  W.  Root,  Colonial  Tariffs,  p.  286. 

30  The  London  Times  *' Trade  Supplement,'*  December,  1917. 

327 


COMMERCIAL  POLICY 

Guiana.  In  speaking  of  this  position  he  quoted  an  ad- 
dress by  Sir  Wilfrid  Collet,  the  Governor  of  the  Colony, 
in  which  he  said: 

American  capital  is  not  wanted  to  develop  the  resources  of 
Demerara;  it  is  a  British  Colony;  British  capital  should,  there- 
fore, be  used  for  the  purpose.  If  it  is  a  success,  then  British 
capitalists  should  get  the  benefit;  if  their  efforts  fail,  then  it 
will  be  British  capital  that  is  lost. 

At  that  time  Americans  were  seeking  to  invest  in  baux- 
ite deposits.  The  correspondent  states  that  the  Secretary 
of  State  for  the  Colonies  gave  instructions  that  this  in- 
dustry should  be  preserved'  for  the  Crown  and  nothing 
should  be  done  whereby  foreign  capitalists  would  be  able 
to  continue  to  exploit  the  deposits  until  after  the  war. 


Serious  complications  have  arisen  from  the  unregu- 
lated lending  of  capital  to  weak  Governments  or  from 
the  conflict  between  financial  interests  and  weak  local 
governments  over  the  development  of  resources.  The 
British  Government  was  led  to  intervene  in  Egypt 
chiefly  to  protect  its  citizens  who  held  Egyptian  bonds.^^ 
French  intervention  in  Morocco  followed  as  a  result  of 
the  unregulated  lending  by  private  French  houses  to  that 
Government.  The  United  States  has  intervened  in 
Haiti  and  the  Dominican  Republic  in  order  to  adjust 
difficulties  which  have  resulted  from  the  unregulated  ad- 
vancing of  capital  by  European  investors  to  irresponsible 
Governments.  A  further  illustration  of  the  connection 
between  financial  investment  and  political  conquest  is 
supplied  by  Italy's  Tripolitan  war.  One  of  the  leading 
factors  causing  this  war  was  that  a  relatively  unim- 

31  H.  N.  Brailsford,  op.  cit.,  Chapter  III. 

328 


FOREIGN  INVESTMENT 

portant  bank,  the  Banco  de  Roma,  having  begun  invest- 
ing in  Tripoli  and  then  practically  attempted  to  ''secure 
a  mortgage  on  the  province, ' '  found  itself  obstructed  by 
Turkey  in  its  attempt  to  get  certain  important  conces- 
sions. It  thereupon  informed  the  Italian  Government 
that  if  military  aid  was  not  granted,  it  would  be  forced 
to  sell  out  to  British  and  German  financiers.  The  presi- 
dent of  the  Bank's  Board  of  Directors  was  the  brother 
of  the  Minister  of  Foreign  Affairs.  War  followed  and 
the  Bank  was  granted  the  right  of  disposing  of  important 
war  contracts.  Since  the  war  this  fortunate  institution 
has  remained  associated  with  the  Government  in  the  de- 
velopment of  Italian  interests  in  Tripoli.^^ 

Another  war  which  might  be  cited  as  having  grown 
out  of  the  interests  of  foreign  investors  and  concession- 
aires is  the  Boer  War.  David  Lloyd-George,  at  that 
time  far  from  being  Premier,  opposed  the  war  as  one 
that  was  waged  in  the  interests  of  those  owning  gold  and 
diamond  mines  in  the  Transvaal. 


The  absence  of  any  authority  to  distribute  loans  and 
concessions  among  the  investing  powers  has  led  nations 
to  employ  diplomatic  influence  backed  by  their  armies 
and  navies  to  assist  their  financial  interests  in  obtaining 
what  they  consider  a  fair  share  of  opportunity  in  ex- 
ploiting the  resources  of  the  world.  From  this  position 
it  was  not  an  unnatural  step  for  aggressive  nations  to 
use^  the  financial  wedge  as  a  device  for  advancing  their 
political  ends.  Russia  and  Japan,  for  example,  at  the 
time  of  the  Five-Power  Loan  to  China  in  1913  had  no 
capital  to  invest  in  a  purely  commercial  enterprise. 
They  insisted,  however,  for  political  reasons  in  sharing 

32R^n6  Pinon,  "L'Europe  et  la  guerre  Italo-Turque,"  Revue 
aes  Deux  Mondes,  June  1,  1912. 

329 


m 

A  ■ 

i 


COMMERCIAL  POLICY 

in  this  Loan.^^     Political  motives  were  also  inseparably 
linked  with  Russia's  activities  in  Persia  and  with  Ger- 
many's plan  to  build  the  Bagdad  Railway.      Russia 
pressed  southward  in  Persia  in  the  hope  of  establishing  a 
seaport  on  the  Persian  Gulf.     Great  Britain,  in  order  to 
protect  her  communications  to  India,  opposed  this  move- 
ment, and  spheres  of  influence  were  agreed  upon  with  a 
neutral  zone  between.      In  1911  Russia  and  Germany 
entered  into  an  agreement  in  which  Germany  recognized 
that  Northern  Persia  was  a  Russian  sphere  of  influence 
and  that  Russia  could  claim  all  the  railway  concessions 
granted  by  the  Persian  Government  in  that  region.     In 
support  of  Russian  policy  it  was  agreed  that  German 
capital  would  be  provided  to  assist  in  the  construction  of 
a  railway  from  Teheran  to  Kohanikin  on  the  Turko-Per- 
sian  frontier.     It  was  to  remain  under  the  control  of  the 
Russian  concessionaires.      In  return  Russia  recognized 
Germany's  commercial  interests  in  northern  Persia  and 
also  recognized  Germany's  rights  granted  by  concession 
in  the  Bagdad  Railway  and  undertook  to  give  diplomatic 
support  to  the  completion  of  that  enterprise.^*      The 
German  plan  to  build  the  Bagdad  Railway,  and  the 
numerous  concessions  which  accompanied  it,  was  the  key- 
stone of  Germany's  Near  Eastern  policy.     It  was  the 
basis  of  her  diplomacy  at  Constantinople  for  many  years. 
Important  as  this  enterprise  was  from  a  financial  and 
trading  standpoint,  it  was  more  conspicuously  a  case  of 
the  use  of  financial  control  to  further  the  political  ends 
of  a  nation. 

In  China  the  so-called  *' scramble  for  concessions"  oc- 
curred during  the  years  following  the  China-Japanese 


33  Stanley  K.  Hornbeck,  Contemporary  Politics  in  the  Far  East, 

p.  395. 

34  W.  Morgan  Shuster,  The  Strangling  of  Persia,  pp.  254-57. 

330 


FOREIGN  INVESTMENT 

war.3^     China's  weakness  had  led  to  the  impression  that 
her  partition  was  at  hand.    Concessions  or  non-alienation 
pledges  were  exacted  from  her  by  France,  Great  Britain, 
Russia,  Germany,  and  Japan.     France  and  Great  Britain 
obtained  concessions  and  privileges  in  the  south  of  China. 
Russia  after  forcing  Japan  to  give  up  the  Liaotung 
Peninsula  took  it  herself  and   obtained  among  other 
things  the  privilege  to  build  railroads  in  Manchuria.     A 
German   fleet   took   possession    of   Kiao-Chau   Bay   in 
Shantung  and  established  her  sphere  of  influence  there. 
Non-alienation  pledges  were  secured  by  France  for  the 
Island  of  Hainan  and  the  provinces  bordering  on  the 
Tonking,  by  Great  Britain  for  the  Yangtse  Valley,  and 
by  Japan  for  the  Fukien  Province.     Among  the  Great 
Powers  these  were  considered  as  establishing  their  prior 
claims  in  case  China  was  partitioned,  but  China  had  no 
intention  of  alienating  its  land  to  any  nation.      Great 
Britain  also  exacted  a  lease  to  Wei-hai-Wei.     The  sordid 
story  of  finance  and  diplomacy  in  China  cannot  be  told 
in  detail  here.     Manchuria  will  serve  as  an  illustration 
of    the    political    consequences    which    have    resulted. 
Russia  had  claimed  the  exclusive  right  to  build  railroads 
in  Manchuria.     When  the  Boxer  uprising  in  1899  ended 
the  scramble  for  concessions,  Russia  occupied  the  prov- 
ince outright.     In  1905  she  was  ejected  by  Japan,  who 
succeeded  to  all  the  Russian  concessionary  privileges. 
Japanese  influence  has  gradually  extended  itself  through- 
out Manchuria  and  into  Eastern  Inner  Mongolia.    China 
was  forced  to  agree  not  to  build  a  line  competing  with 
the  South  Manchuria  Railway  Company,  nor  were  for- 
eigners other  than  Japanese  to  enter  into  competition. 
British    capitalists    were   prevented    from    building    a 
Chapt'e^X^/''"^'*  ^^^<^"s«^on  see  Stanley  K.  Hornbeck,  op.  ciL, 

331 


COMMERCIAL  POLICY 

Hsinmintun-Fakumen  extension  of  the  North  China  line, 
and  British,   American,   and   Chinese  capitalists   from 
building  a  Chinese  Government  line  from  Chin  Chou  to 
Aigun.     It  is  not  likely  that  any  line  could  be  projected 
in  South  Manchuria  that  would  not  be  deemed  to  com- 
pete with  the  South  Manchuria  Railway  or  its  branches ; 
hence,  the  position  of  Japan  is  monopolistic.     The  con- 
trol of  this  railway  has  been  placed  in  the  hands  of  the 
Japanese  Ministry  of  Communications,  making  it  a  Gov- 
ernment venture,  and  making  its  privileges  the  privileges 
of  the  Japanese  Government.    Among  these  privileges  is 
the  right  to  work  the  mines  of  the  regions.    In  all  South- 
eastern Manchuria  the  Japanese  Government  is  the  su- 
preme authority.      The  Chinese  administration  is  re- 
tained, but  a  veto  power  is  exercised  by  Japanese  officials. 
When  Secretary  of  State  Knox  suggested,  in  1910,  that 
the  railways  of  Manchuria  be  neutralized,  the  Russian 
and  Japanese  Governments  refused  consent,  the  Foreign 
Minister  of  Japan  declaring  that  numerous  Japanese 
enterprises  had  been  promoted  in  Manchuria  in  the  be- 
lief that  the  railway  would  remain  in  Japanese  hands 
and  that  it  could  not  be  given  up. 

Probably  the  boldest  attempt  which  has  been  made  to 
impose  the  rule  of  one  country  on  another  is  found  in 
the  21  demands^^  made  by  Japan  on  China  in  1915.  If 
these  demands  had  been  acceded  to  as  originally  made, 
the  result  would  have  been  the  establishment  of  a 
Japanese  protectorate  over  China."  China  was  finally 
forced  to  accept  some  of  them,  which  turned  over  to 
Japan  German  rights  and  privileges  in  the  Shantung, 
extended  Japanese  rights  in  Manchuria  and  Eastern 
Inner  Mongolia,  secured  for  Japanese  control  of  the  iron 

36  Quoted  in  Appendix  III. 

37  Stanley  K.  Hornbeck,  op.  cit,  Chapter  X. 

332 


( 


FOREIGN  INVESTMENT 

and  steel  mills  at  Hankow  and  mines  in  the  surrounding 
region,  and  compelled  China  to  agree  not  to  cede  or 
lease  to  any  Power,  bays,  harbors,  or  islands  along  her 
coast.  Since  the  outbreak  of  the  war,  Japan  has  loaned 
to  China  over  $100,000,000,^^  *  thereby,  in  the  view  of  the 
Chinese,  increasing  its  hold  on  the  country. '  '^^ 

No  region  requires  international  supervision  more  than 
China.  In  that  country  even  more  than  in  Africa  or 
the  Near  East  the  unregulated  contest  of  financial  in- 
terests backed  by  narrow  national  diplomacy  threatens 
the  future  peace  of  the  world.  The  statement  of  John 
Hay,  true  when  he  made  it  some  twenty  years  ago,  is 
more  true  today  than  ever:  **The  storm-centre  of  the 
world  has  gradually  shifted  to  China.  .  .  .  Whoever 
understands  that  mighty  Empire  .  .  .  economically 
.  .  .  has  a  key  to  world-politics  for  the  next  five  cen- 
turies. .  .  .  The  danger  is  great  that  China  will  be- 
come, through  the  jealousy  and  the  indifference  of  the 
Western  Powers,  the  most  dangerous  storm  center  in  the 
world  after  the  European  peace  is  concluded. ''*°  A  con- 
sideration of  the  Chinese  problem  is  imperative  in  the 
interests  of  world  peace,  for,  as  has  been  stated  by  a 
well-informed  British  champion  of  China  :*^  **The 
politico-economic  relationship  between  the  Republic  and 
the  world  must  be  remodelled  at  the  earliest  possible 
opportunity,  every  agreement  which  has  been  made  since 
the  treaties  of  1860  being  carefully  and  completely 
revised. '  * 

In  considering  the  policy  to  be  pursued  toward  invest- 

i»  Millard's  Eeview,  August  10,  1918. 

89  W.  Reginald  Wheeler  (Hangchow  College),  China  and  the 
World  War  (1919),  p.  161. 

*o  F.  W.  Williams,  The  Nation  (New  York),  November  22,  1917. 

*iB.  L.  Putnam-Weale,  The  Fight  for  the  Bepuhlic  of  China 
(1917),  p.  375. 

333 


COMMERCIAL  POLICY 


FOREIGN  INVESTMENT 


ments,  loans  and  concessions,  the  distinction  should  be 
clearly  drawn  between  those  made  in  countries  that  are 
both  politically  and  economically  independent  and  those 
made  in  other  countries.  The  former  are  amply  able  to 
protect  themselves  from  the  form  of  economic  penetra- 
tion practiced  by  Germany  before  the  war.  The  danger 
here,  in  fact,  is  that  unnecessary  restrictions  will  be 
placed  in  the  way  of  the  freedom  of  investment.  On  the 
other  hand,  a  very  different  policy  is  desirable  in  unde- 
veloped regions  where  political  control  is  weak.  Here, 
if  investments,  loans,  and  concessions  are  regulated  at 
all,  it  must  be  from  without.  The  regime  of  anarchy 
and  license  which  prevailed  before  the  war  must  be 
replaced  by  strict  international  supervision.  No  one 
power  should  be  permitted  to  close  the  door  to  the  capital 
of  all  others,  nor  should  nations  permit  an  unregulated 
scramble  to  go  on  among  their  financial  interests  for 
privileges.  But  until  some  form  of  international  regu- 
lation is  adopted,  it  is  almost  inevitable  that  nations  will 
use  diplomacy  and  the  threats  of  armaments  to  obtain 
for  their  citizens  exclusive  spheres  of  influence  and  that 
complications  w^ill  arise  between  investing  countries  and 
between  them  and  weak  peoples.  Says  a  British  writer 
of  standing  :*^ 

The  problem  is  two-fold :— first,  how  to  secure  the  reason- 
able rights  of  the  inhabitants  of  such  undeveloped  countries 
against  a  policy  of  plunder,  extinction  of  life,  or  servitude  im- 
posed by  the  people  of  a  powerful  aggressive  state;  secondly, 
how  to  secure  equal  opportunities  to  the  members  of  various 
advanced  nations  to  participate  in  the  work  of  developing  the 
natural  resources  and  the  trade  of  the  backward  countries. 
The  peace  of  the  world  is  dependent  upon  both. 

*2  C.  K.  Hobson,  chapter  on  ' '  The  Open  Door,  *  *  in  Towards  a 
Lasting  Settlement  (1916),  p.  105. 

334 


Pi 


Imperialism  has  failed  to  solve  the  problem.  It  has 
secured  the  rights  of  the  investors  but  frequently  at  the 
expense  of  the  borrowing  peoples  and  the  world.  It 
looked  upon  economically  backward  countries  as  fields 
for  exploitation.  If  it  be  permitted  to  continue  to  de- 
termine the  relations  of  nations,  we  may  expect  frequent 
disputes  in  all  parts  of  the  world,  fomenting  of  revolu- 
tions, interventions  of  Governments  favoring  the  inter- 
ests of  their  citizens,  the  establishment  of  protectorates, 
and  continued  hostility  among  nations. 

The  alternative  to  economic  imperialism  which  has 
often  been  advocated  is  the  policy  of  Icdssez  faire.  It  is 
argued  with  some  plausibility  that  if  investors  wish  to 
invest  their  funds  in  foreign  enterprises,  they  should 
take  all  the  risks  and  submit  themselves  to  the  local 
regime.  This  policy,  advocated  by  many  anti-imperial- 
ists, is  frequently  insisted  upon  by  the  Governments  of 
the  undeveloped  countries.  The  Mexican  Constitution 
adopted  in  1917,  for  example,  provided  that  Mexico 
would  grant  the  right  to  acquire  ownership  in  lands, 
water,  and  other  appurtenances,  or  concessions  to  de- 
velop mines,  waters,  and  mineral  fuel  in  the  Republic  of 
Mexico  provided  the  foreigners  *' agree  before  the  De- 
partment of  Foreign  Affairs  to  be  considered  Mexicans 
in  respect  to  such  property,  and  accordingly  not  to  in- 
voke the  protection  of  their  Governments  in  respect  to 
the  same,  under  penalty,  in  case  of  breach,  of  forfeiture 
to  the  Nation  of  property  so  acquired." 

The  laissez-faire  proposal  leaves  out  of  account  the 
positive  value  of  foreign  investments  to  undeveloped 
regions  and  to  the  world  as  a  whole.  If  a  single  nation, 
such  as  the  United  States,  were  to  refuse  support  to 
financial  interests  abroad,  it  would  only  result  in  the 
elimination  of  its  influence  from  the  developing  regions. 

335 


COMMERCIAL  POLICY 

Our  capitalists,  if  they  still  cared  to  invest,  would  merely 
transfer  their  capital  to  another  country.  Where  there 
is  no  regulation,  the  rate  of  interest  is  high  and  the  ex- 
ploitation which  exists  is  normally  prompted  by  the  rists 
involved,  which  would  be  greater  rather  than  less  if 
protection  were  refused.  If  all  industrial  naticns 
adopted  the  policy  of  non-intervention,  the  struggle  of 
financial  interests  would  result  in  unfair  exploitation  of 
helpless  races  and  in  time  would  become  an  issue  in 
world  politics  in  spite  of  the  home  Governments. 

Foreign  investments  and  concessions  in  undeveloped 
countries  constitute  a  problem  which  can  be  adequately 
solved  only  by  joint  action  among  nations.  No  alterna*- 
tive  exists  that  does  justice  to  the  interests  affected  and 
assures  a  lessening  of  causes  of  war.  Supervision  and 
regulation  of  international  finance  is  essentially  the  task 
of  an  international  commission  functioning  under  the 
League  of  Nations.  Such  a  commission  would  no  doubt 
find  it  necessary  to  establish  local  commissions  in  the 
different  regions  of  the  world  where  the  conditions  re- 
quired it.  Details  must  be  worked  out  in  practice.  The 
recognition  of  the  principle  of  international  control  is 
the  important  thing.  In  general,  the  work  of  such  a 
commission  would  fall  into  two  classes.  In  the  first 
place,  it  would  assist  in  the  distribution  of  loans  and  con- 
cessions among  nations  that  have  surplus  capital.  Public- 
ity on  loans  and  loan  contracts  would  in  itself  have  value. 
Perhaps  provision  should  be  made  that  weaker  nations 
seeking  loans  should  apply  to  it  and  then  it  would  under- 
take the  underwriting  of  the  loans  to  all  countries  on 
equal  terms.  By  establishing  methods  for  equally  dis- 
tributing loans  and  concessions,  the  temptation  to  bribe 
weak  Governments  and  the  necessity  for  diplomatic  pres- 
sure would  lessen,  and  the  enterprises  would  become  less 

336 


< 


FOREIGN  INVESTMENT 

and  less  political  and  more  and  more,  what  they  should 
be,  merely  commercial.    In  the  second  place,  the  commis- 
sion would  have  the  duty  of  protecting  the  borrowing 
nation  from  exploitation  and  undue  political  pressure 
and  of  adjusting  disputes  between  it  and  the  lender.     It 
should  have  power  to  fix  the  terms  of  loans  and  conces- 
sions.   Its  supervision,  by  creating  security,  would  enable 
undeveloped  nations  to  get  capital  on  reasonable  terms 
and  at  the  same  time  make  foreign  investments  safe  for 
the  investor.     In  case  disputes  arose  between  local  gov- 
ernments and  the  foreign  commercial  interests,  as,  for 
example,  when  revolutionary  changes  in  government  are 
resorted  to  as  a  means  of  avoiding  the  payment  of  debts, 
appeal  for  support  to  the  foreign  office  of  the  home  Gov- 
ernment of  the  investors  should  not  be  permitted,  but 
should  be  required  to  be  made  to  the  commission.    Such  a 
practice  would  tend  to  eliminate  the  use  of  investments  as 
an  excuse  for  intervention  and  political  dominion.    Some 
form  of  international  control,  whether  that  proposed  or 
some  other,  is  unquestionably  the  only  avenue  of  escape 
from  the  political  complications,  rivalries,  and  struggles 
which  have  vexed  and  disturbed  the  world  in  the  past 
and  which,  if  met  by  no  constructive  solution,  will  lead 
to  future  wars. 


CHAPTER  XVIII 

TOWARD  WORLD  DEMOCRACY 

Place  of  national  governments  in  progress  in  the  immediate  future 
—  National  security,  both  military  and  economic  —  Political 
deniocracy  often  associated  with  commercial  and  financial  im- 
perialism—  Imperialistic  nations  cannot  be  formed  into  a 
successful  democratic  league  —  Eesponsibilities  of  democracies 
to  undeveloped  regions  —  Undesirable  sort  of  ''league  of 
nations''  — Holy  Alliance  —  Triple  Alliance  —  Triple  En- 
tente—  Mittel  Europa  —  Paris  Economic  Conference  — 
Shall  the  ''next  war"  be?  —  Arguments  for  a  democratic 
league  of  nations  —  Causes  of  war  — What  the  Great  War 
has  taught  in  cooperation  —  Failure  of  unrestricted  competi- 
tion —  Proposals  for  a  league  of  nations  —  Sovereignty  — 
Covenant  of  the  League  of  Nations  —  International  commis- 
sions —  Their  functions  and  relation  to  the  League  —  The 
need  of  vision. 

New  worlds  do  not  just  happen.  The  reconstruction 
of  our  national  and  international  life  requires  construc- 
tive planning  and  positive  action.  In  no  field  is  this 
more  true  than  in  the  complex  economic  relationships 
of  nations.  Any  peace  settlement  that  does  not  deal 
adequately  with  the  economic  questions  that  have 
played  so  large  a  part  in  the  discussions  of  international 
politics  during  the  last  half  century  will  not  be  worth 
its  cost. 

The  path  toward  world  democracy  lies  through 
nationality.  International  organization  cannot  at  the 
present  stage  of  the  world 's  development  take  the  place 
of  national  governments.  It  can  simply  supplement 
them.  Upon  the  solid  foundation  of  democratic  nations 
we  should  rebuild  social  life  as  it  has  emerged  from  the 
war.     A  successful  league  of  nations  depends  upon  the 

338 


TOWARD  WORLD  DEMOCRACY 

recognition  of  the  right  of  each  nation  to  adopt  such 
protective  measures,  whether  military  or  economic,  as 
will  give  it  security  and  develop  its  resources.     Nations 
exist  as  protectors  of  peoples  and  their   civilization. 
Armaments  are  not  to  be  cast  aside  merely  by  agree- 
ment; they  are  a  vital  part  of  national  life,  for  they 
guarantee  security.      The  Covenant  of  the  League  of 
Nations'   provides  only  for  the  reduction  of  national 
armaments  to  the  lowest  point  consistent  with  national 
safety  and  the  enforcement  by  common  action  of  inter- 
national obligations,  having  special  regard  to  the  geo- 
graphical situation  and  circumstances   of  each   State. 
We  do  not  think  of  the  British  fleet  as  separate  from  the 
British  Empire.      Nations  cannot  be  asked  to  give  up 
their  means  of  defense  until  a  league  of  democratic 
nations  has  developed  to  a  point  at  which  it  can  guar- 
antee security.    And  this  cannot  be  accomplished  in  the 
twinkling  of  an  eye.     Decades  were  necessary  to  work 
out   the   idea    of    federation   among    the   homogeneous 
states  of  the  American  Union.     Gradually,  very  gradu- 
ally, were  the  states  persuaded  that  their  interests  justi- 
fied the  limitations  of  their  activities.     Not  until  after 
the  Civil  War  could  we  feel  reasonably  sure  that  the 
Federal  Government  would  not  perish,  and  it  took  the 
Spanish- American  War  to  bring  out  the  full  measure  of 
national  consciousness.      In  America  we  were  first  a 
union  of  states,  then  a  union  of  peoples.     In  the  Con- 
stitution the  Federal  Government  was  given  power  to 
declare  war,  to  raise  and  support  armies,  and  to  pro- 
vide and  maintain  a  navy.     But  the  states  reserved  the 
right  to  arm.     *'A  well  regulated  militia,''  so  the  Sec- 
ond Amendment  to  the  Constitution  reads,  ''being  neces- 
sary to  the  security  of  a  free  state,  the  right  of  the  people 


1  Quoted  in  Appendix  IX. 


339 


/ 


COMMERCIAL  POLICY 

to  keep  and  bear  arms  shall  not  be  infringed."  This 
right  to  military  defense  reserved  to  each  state  in  the 
Union  ceased  to  seem  important  to  American  citizens 
only  when  the  Federal  military  power  became  strong 
enough  to  insure  ''the  security  of  a  free  State." 

This  reasoning  applies  with  equal  force  to  the  economic 
problems  of  nations.     Nations  are  entitled  to  that  degree 
of  industrial  and  commercial  security  that  can  be  ob- 
tained without  discrimination  and  imperialistic  aggres- 
sion.    What  has  been  said  in  earlier  chapters  concerning 
American  commercial  policies  applies  with  equal  force 
to  other  nations.     Protective  measures  may  be  used  to 
establish  or  preserve  essential  industries.     Nations  with 
natural  resources  may  develop  them  with  tariffs;  they 
may  adopt  measures  to  diversify  their  life  and  develop 
their  productive  powers.     Anti-dumping  legislation  may 
be  enacted;  no  nation  need  submit  to  price  cutting  by 
foreign  industries  that  undermines  the  industrial  fabric 
essential  to  its  economic  wellbeing.      Nations  may  also 
use  their  economic  power  in  such  a  way  as  to  enforce 
equality  of  treatment  for  their  citizens  doing  business 
abroad.      These  and  similar  measures  that  aim  at  the 
establishment  of  economic  security  and  equality  of  treat- 
ment are  not  inconsistent  with  a  league  of  free  nations, 
but  are,  in  many  particulars,  essential  in  preserving  that 
body  of  democratic  tradition  from  which  a  world  organ- 
ization must  draw  its  ideals.     Protective  tariffs  have  at 
times  been  used  to  advance  the  interests  of  a  special 
class,  but  so  also  has  free  trade.     Neither  protection  nor 
free  trade  is  applicable  to  all  conditions.     A  complete 
establishment  of  democracy  in  economic  as  well  as  politi- 
cal affairs  may  still  depend  for  its  security  upon  pro- 
tective tariffs,  anti-dumping  legislation,  and  bargaining 
tariffs.      These  measures  may  be  necessary  in  molding 

340 


TOWARD  WORLD  DEMOCRACY 

social  institutions  and  in  preserving  the  social  progress 
which  a  people  has  made. 

In  preparing  for  a  democratic  world  league,  reform 
for  each  nation  constituting  it  should  begin  at  home. 
Even  in  political  democracy  nations  are  far  from  perfect. 
Some  nations  seeking  admittance  to  the  world  league 
have  no  conception  of  democratic  ideals ;  others,  and  the 
most   powerful    (including   the   United    States,    Great 
Britain  and  her  self-governing  dominions,  France  and 
Italy),  have,  some  more,  some  less,  shaped  their  political 
institutions  along  democratic  lines.      But  in  industry, 
trade,  and  finance  democratic   ideas  have  made  slow 
progress.     Small  groups  with  autocratic  power  still  con- 
trol the  economic  and  social  activities  of  large  numbers 
of  human  beings  through  the  ownership  or  control  of 
capital.     The  share  of  labor  in  the  control  of  industry 
has  been  slight,  but  in  that  field  democracy  is  making 
progress.^      In  foreign  trade  and  finance  the  power  of 
small  autocratic  groups  has  been  almost  supreme,  and 
Governments,  democratic  as  well  as  autocratic,  have  lent 
their  power  to  further  this  growing  commercial  and 
financial  imperialism.      Nationalism  has  been  brought 
into  disrepute  because  peoples,  content  with  political 
control  which  never  reached  the  evil,  allowed  the  national 
power  to  be  used  to  further  the  selfish  interests  of 
dynastic  or  commercial  classes.     Peoples  should  not  be 
satisfied  with  having  overthrown  the  autocracy  of  Ger- 
many.    The  same  thing  that  made  Germany  dangerous 
is  raising  its  head  among  the  victorious  allies  and  it  is 
the   great    enemy   of    a    world   league.      Imperialistic 

zCf.  Reconstruction  Programme  of  the  British  Labour  Party. 
See  also  A.  E.  Zimmern,  Nationality  and  Government  (1918), 
p.  172  et  seq. 

341 


COMMERCIAL  POLICY 

nations,  even  if  they  hypocritically  call  themselves 
democracies,  cannot  be  welded  into  a  democratic  league. 
The  first  task  before  nations  then  is  to  perfect  within 
their  own. borders  the  alliance  between  democracy  and 
national  economic  aspirations. 

Democracies  should  see  to  it  that  neither  their  citizens 
nor  their  Governments  pursue  a  policy  toward  other 
peoples  that  is  contrary  to  democratic  principles  and 
that  may  embroil  them  in  international  difficulties.  This 
requires  that  Governments  be  truly  representative,  and 
particularly  that  foreign  relations  be  under  the  guidance 
of  those  who  appreciate  their  responsibility  for  the  ob- 
servance of  democratic  principles  and  the  maintenance 
of  democratic  ideals.  Publicity  is  essential.  Secret 
agreements  have  been  one  of  the  chief  devices  employed 
by  those  who  used  the  machinery  of  modern  States  in 
the  interests  of  special  groups.  At  the  outset  it  should 
be  agreed  that  **  there  shall  be  no  private  international 
understandings  of  any  kind,  but  diplomacy  shall  pro- 
ceed always  frankly  and  in  the  public  view.*'^  Agree- 
ments made  in  contravention  of  this  democratic  principle 
should  be  held  not  to  be  binding. 

The  success  of  any  league  of  nations  will  depend 
primarily  upon  the  spirit  in  which  individual  nations 
carry  out  the  covenants  of  the  final  peace.  Discrimina- 
tions in  trade,  transportation,  and  tariffs  and  colonial 
monopolies  are  clearly  undemocratic.  But  the  accept- 
ance of  the  principle  of  equality  of  treatment,  the  open 
door,  and  international  supervision  will  not  be  sufficient 
if  commercial  classes  and  Governments  are  permitted  to 
devise  ingenious  ways  for  evading  international  obliga- 
tions.     A  democratic  principle  cannot  be  applied  by 

3  Cf.  Article  XVIII  of  the  Covenant  of  the  League  of  Nations, 
Appendix  IX. 

342 


TOWARD  WORLD  DEMOCRACY 

an  imperialistically-minded  Government.  Democracies 
must  exercise  constant  control  over  the  commercial 
activities  of  their  citizens  abroad  and  see  to  it  that  the 
spirit  as  well  as  the  letter  of  their  international  cove- 
nants is  adhered  to. 

Such  a  policy  should  never  be  merely  negative,  de- 
structive, or  restrictive ;  it  should  be  constructive.  It 
should  seek  to  further  the  interests  of  each  nation  m 
every  way  consistent  with  harmonious  world  relations. 
Each  nation's  goods  and  capital  are  entitled  to  share 
in  the  development  of  the  backward  countries.  Trade 
and  investment  are  reciprocally  beneficial.  In  checking 
the  abuses  to  which  they  incline,  we  should  not  make  the 
greatest  mistake  of  all  —  the  mistake  of  seriously  impair- 
ing these  great  affirmative  forces  making  for  material 

progress. 

Strong  nations  with  democratic  traditions  that  have 
built  up  through  centuries  their  civilization  have  also  an 
obligation  to  those  parts  of  the  world  less  advanced. 
The  substitute  for  imperialism  is  not  a  laissez-faire 
policy.      Letting  backward  peoples  alone  to  work  out 
their  salvation  with  the  not  disinterested  aid  of  private 
trading   and   financial   interests   results   often   in   the 
grossest  exploitation  and  social  chaos.    By  such  unheroic 
practice  a  nation  may  for  a  time  escape  international 
entanglements,  but  sooner  or  later  the  evil  effects  of  the 
laissez-faire  policy  will  draw  it  into  conflict.     Even  if 
democratic  nations  did  not  have  this  selfish  interest  in 
checking  tendencies  outside  their  borders  that  ultimately 
may  embroil  them,  they  have  a  duty  to  prevent  exploita- 
tion (forced  labor,  the  traffic  in  liquor,  the  arming  of 
natives,*  for  example)  and  to  educate  backward  peoples 

4C/.    Article    XXIII,    Covenant    of   the    League    of    Nations, 
Appendix  IX. 

343 


COMMEKCIAL  POLICY 

in  the  principles  of  self-government.  Democracies 
should  not  shirk  this  responsibility.  The  chief  burden 
of  this  work  cannot  be  carried  at  present  by  any  inter- 
national organization.  It  must  be  borne  by  individual 
nations,  holding  their  colonies  and  protectorates  in  trust 
and  answerable  to  an  international  assemblage  for  the 
proper  performance  of  their  obligations.^ 

^  Not  every  form  of  association  among  nations  is  de- 
sirable. Imperialism,  which  has  appeared  so  objection- 
able m  individual  nations,  has  its  own  particular  form 
of  a  'league  of  nations'^  and  the  unsuspecting  are  likely 
to  be  led  astray  by  its  specious  arguments.  At  the  close 
of  the  war  we  heard  it  suggested:  -We  already  have  a 
league  of  nations.  What  more  do  we  need?  The 
nations  who  fought  together  in  war  now  constitute  a 
league  for  peace. ' ' 

An  alliance,  however,  is  not  a  league  of  nations.  It  is 
a  group  of  nations  which  for  the  time  being  have  a 
common  interest,  often  an  imperialistic  interest,  which 
they  wish  to  maintain  against  outsiders.  It  implies  the 
exclusion  of  some  nations  whose  interests  are  antago- 
nistic. An  imperialistic  *' league  of  nations''  is  worse 
than  the  imperialism  of  single  nations. 

The  famous  Quadruple  Alliance  of  1815  and  the  so- 
called  Holy  Alliance  which  supplemented  it  were  to  the 
autocrats  of  that  day  a  sort  of  league  of  nations  for  the 
purpose  of  maintaining  the  status  quo.  Great  Britain 
was  not  a  party  to  the  Holy  Alliance,  although  a  party 
with  Austria,  Prussia,  and  Kussia  to  the  Quadruple 
Alliance.  Tsar  Alexander  I  of  Russia  persuaded  the 
autocrats  of  Prussia  and  Austria  to  join  him  in  the  Holy 
xkll!  ^'"^^^^   application   of  this  principle  see  iUd.,  A^e 

344 


TOWARD  WORLD  DEMOCRACY 

Alliance  with  the  purpose  both  in  domestic  and  foreign 
affairs  * '  to  take  for  their  sole  guide  the  precepts  of  that 
Holy  Religion,  namely,  the  precepts  of  Justice,  Christian 
Charity,  and  Peace,  which,  far  from  being  applicable 
only  to  private  concerns,  must  have  an  immediate  in- 
fluence on  the  councils  of  Princes,  and  guide  all  their 
steps,  as  being  the  only  means  of  consolidating  human 
institutions  and  remedying  their  imperfections."  This 
** piece  of  sublime  mysticism  and  nonsense,"  as  Lord 
Castlereagh  called  it,  illustrates  clearly  the  operation  of 
alliances.  When  Canning  became  British  Foreign  Secre- 
tary in  1822,  he  took  the  first  step  toward  withdrawing 
from  the  Quadruple  Alliance  and  the  ending  of  the  Con- 
cert of  Europe.  He  supported  the  revolting  Spanish 
colonies  in  Latin  America  against  the  illiberal  policy  of 
Metternich,  proudly  declaring  that  he  had  **  called  the 
New  World  into  existence  to  redress  the  balance  of  the 
Old."  At  the  same  time  the  President  of  the  United 
States  set  forth  the  famous  Monroe  Doctrine. 

The  alliances  that  immediately  preceded  the  Great 
War  furnish  further  examples  of  this  form  of  inter- 
national association.  Particularly  from  the  '90 's  on  to 
the  outbreak  of  the  war  there  were  diplomatic  struggles 
of  greatest  moment.  Alliance  was  balanced  against 
alliance  with  many  efforts  to  tip  the  scale  in  favor  of  the 
hegemony  of  one  group.  Bismarck's  Triple  Alliance 
may  be  considered  as  the  stai^ting  point.  As  it  spread 
its  influence  toward  the  east  and  as  German  influence 
supplanted  that  of  other  powers  at  Constantinople, 
France  and  Russia  were  drawn  together  and  formed  the 
Dual  Alliance.  In  1904  the  Entente  Cordiale  was  estab- 
lished between  France  and  Great  Britain  and  three  years 
later  Russia  was  added,  making  the  Triple  Entente. 
In  1911  the  alliance  between  Great  Britain  and  Japan, 

345 


^ 


COMMERCIAL  POLICY 


TOWARD  WORLD  DEMOCRACY 


originally  entered  into  in  1902,  was  renewed.  Such  was 
the  grouping  of  the  powers  in  1914  when  Germany  threw 
aside  diplomacy  and  attempted  to  establish  her  world 
dominion  by  force  of  arms. 

As  the  war  dragged  on,  there  was  a  further  extension 
of  the  alliance  idea.  The  Triple  Alliance  after  the  with- 
drawal of  Italy  became  the  Quadruple  Alliance  by  the 
addition  of  Bulgaria  and  Turkey,  and  this  combination 
became  the  basis  of  the  Prussian  dream  of  Mittel  Europa. 
This  grouping  of  powers,  if  it  had  been  permitted  to 
remain  and  hold  its  captured  territory  and  to  weld  itself 
into  an  economic  unit  by  preferential  customs  duties, 
loans,  control  of  trade  routes,  and  all  the  other  subtle 
means  of  economic  penetration,  would  have  been  an 
alliance  embodying  all  the  worst  features  of  combative 
nationalism.  Its  significance  for  the  purposes  of  this 
discussion  is  that  it  shows  the  conditions  to  which 
alliances  give  rise. 

A  similar  development  took  place  among  the  Allied 
Governments.  In  June,  1916,  they  adopted  *'on 
grounds  of  necessary  and  legitimate  defense"  the  famous 
resolutions  of  the  Paris  Economic  Conference.*  These 
resolutions  proposed  an  economic  war  during  an  in- 
definite period,  called  the  *' reconstruction '^  period,  fol- 
lowing the  Peace  Conference.  Most-favored-nation 
treatment  was  to  be  refused  to  the  Central  Powers,  that 
is,  they  were  to  be  discriminated  against ;  and  since  ex- 
perience has  shown  that  discrimination  is  a  sword  that 
cuts  both  ways,  compensatory  outlets  were  to  be  given  to 
any  Ally  whose  commerce  was  injured.  Added  to  this 
plan  to  restrict  the  markets  of  the  Central  Powers,  the 
Allies  proposed  to  deprive  German  industries  of  raw 
materials  by  conserving  for  themselves  **  their  natural 


)  y 


«  Appendix  II. 


fi 


346 


resources"  and  establishing  ** special  arrangements  to 
facilitate  the  interchange  of  these  resources. ' '  I'he  com- 
merce of  the  *' enemy  Powers"  was  to  be  submitted  to 
*' special  treatment,"  and  their  goods  —  let  us  not  forget 
that  this  was  to  be  after  peace  had  been  signed  —  were 
to  be  subjected  **  either  to  prohibitions  or  to  a  special 
regime  of  an  effective  character. "  *  *  Special  conditions '  * 
were  also  to  be  imposed  on  Teuton  ships  —  more  *' navi- 
gation laws,"  it  may  be  supposed.  As  if  these  restric- 
tions were  not  enough  to  remind  us  of  the  fiercest  days 
of  trade  conflict  in  former  centuries,  it  was  proposed  to 
revive  the  practice  of  excluding  foreigners  from  all  re- 
tail trade  in  the  mediaeval  town;  the  subjects  of  the 
Central  Powers  were  to  be  prevented  from  exercising  in 
the  countries  of  the  Allies  **  industries  or  professions 
which  concern  national  defense  or  economic  .  inde- 
pendence." 

This  economic  alliance  was  not,  according  to  the  reso- 
lutions, to  be  temporary.  In  the  spirit  of  exclusive 
nationalism  the  Allies  decided  **to  take  the  necessary 
steps  without  delay  to  render  themselves  independent 
of  the  enemy  countries  in  so  far  as  regards  the  raw  ma- 
terials and  manufactured  articles  essential  to  the  normal 
development  of  their  economic  activities."  This  self- 
sufficiency  was  to  be  achieved  by  subsidies,  enterprises 
controlled  by  Government,  scientific  and  technical  re- 
search, customs  duties,  and  '*  prohibitions  of  a  tempo- 
rary or  permanent  character. ' ' 

The  Paris  resolutions  proclaimed  Germany  a  people 
with  whom  the  Allies  would  have  no  dealings.  Although 
the  signing  of  some  sort  of  peace  was  assumed,  the 
resolutions  proposed  that  after  it  there  should  remain  an 
impassable  economic  gulf  between  the  Allies  and  the 
** enemy  countries."     But  what  kind  of  peace  can  that 

347 


Si 


COMMERCIAL  POLICY 

be  in  which  the  ''allies''  are  grouped  in  one  economic 
camp  and  their  ** enemies''  in  another? 

In  so  far  as  the  Paris  resolutions  proposed  to  use  the 
economic  power  of  the  Allies  as  a  supplement  to  military 
operations,  they  were  highly  commendable.     They  may 
also  be  justified  as  a  card  in  the  game  of  strategy  —  an 
effort  to  frighten  the  Central  Powers  with  the  use  of 
the  economic  weapon.      The  pact  came  at  a  time  when 
the  hope  for  military  success  on  the  side  of  the  Allies 
was  all  but  gone.      The  economic  weapon  appeared  to 
be  the  only  one  left  in  the  Allied  arsenal.     The  economic 
boycott  will,  it  is  true,  be  one  of  the  devices  used  by  the 
League  of  Nations  against  recalcitrant  nations.     Under 
the    Covenant    of   the    League    of    Nations    the   mem- 
bers   undertake'    to   subject    a   nation    committing   an 
''act  of  war    ...     to  the  severance  of  all  trade  or 
financial  relations,  the  prohibition  of  all  intercourse  be- 
tween their  nationals  and  the  nationals  of  the  covenant- 
breaking  State,  and  the  prevention  of  all  financial,  com- 
mercial, or  personal  intercourse  between  the  nationals  of 
the  covenant-breaking  State  and  the  nationals  of  any 
other  States,  whether  a  member  of  the  League  or  not." 
But  such  a  policy  of  the  League  is  fundamentally  differ- 
ent from  the  exclusive  combative  proposals  of  the  Paris 
resolutions.     They,  like  the  plan  for  Mittel  Europa,  are 
the  last  organized  effort  of  the  old  system  of  alliances  to 
save  itself.      They  are  militarism  translated  into  com- 
mercial warfare. 

From  this  hasty  sketch  of  alliances  it  should  at  least 
be  clear  that  the  sort  of  "league  of  nations"  with  which 
we  ended  the  war  —  an  alliance  of  the  Allies  —  is  not  the 
kind  the  world  wants.  The  same  is  true  of  the  much 
advertised   Anglo-Saxon   Alliance.      The   nations   that 


7  Article  XVI. 


348 


TOWARD  WORLD  DEMOCRACY 

won  the  war,  or  even  the  English-speaking  peoples  of  the 
earth,  have  the  power  today  to  maintain  the  peace  of  the 
world  for  a  hundred  years.  But  at  the  end  of  the  hun- 
dred years  the  world  would  be  no  nearer  to  inter- 
national cooperation  than  it  is  today.  Such  alliances 
would  probably  maintain  the  peace  in  their  own  in- 
terests, and  even  if  they  were  considerate  to  others,  they 
would  always  be  under  suspicion.  Excluded  peoples 
would  have  at  least  one  thing  in  common  —  their  opposi- 
tion to  the  alliance.  Their  common  policy  would  be  the 
battering  down  of  its  monopoly.  Some  power  would 
perhaps  find  it  to  its  interest  to  fall  away  from  the 
alliance  as  Great  Britain  left  the  Quadruple  Alliance. 
The  difficulty  is  inherent  in  the  nature  of  an  alliance, 
and  if  nothing  but  an  alliance  results  from  the  Great 
War,  the  old  game  of  diplomacy,  balancing  of  powers, 
and  conflict  will  begin  anew  to  prepare  the  world  for 
the  "next  war.'' 

The  arguments  in  behalf  of  the  association  of  demo- 
cratic nations  for  the  purpose  of  dealing  with  those 
problems  that  no  one  of  them  can  solve  alone  are  mani- 
fold. The  woeful  failure  of  alliances  and  the  idea  of  the 
balance  of  power  is  one  of  them.  An  attempt  to  estab- 
lish a  league  of  nations  can  hardly  at  worst  end  in  any- 
thing more  catastrophic  than  the  war  that  began  in  1914. 
Only  a  few  of  the  other  arguments  can  here  be  touched 
upon.  Modern  war  has  come  to  absorb  all  the  energies  of 
the  warring  nations.  Inventions  which  are  the  pride  of 
modem  material  progress  have  been  turned  into  instru- 
ments of  destruction.  "There  has  been  a  change,  an 
intensification,  of  the  destructive  processes  of  war  which 
opens  up  a  black  alternative"  to  the  possibilities  of 
"human  unification  and  world-unanimity"  which  the 

349 


a 


COMMERCIAL  POLICY 

development  of  transportation,  communication,  produc- 
tion, and  education  make  possible.® 

.  .  .  The  case  as  it  is  commonly  stated  in  the  propaganda 
literature  for  a  League  of  Nations  is  a  choice  between,  on  the 
one  hand,  a  general  agreement  on  the  part  of  mankind  to 
organize  a  permanent  peace,  and  on  the  other,  a  progressive 
development  of  the  preparation  for  war  and  the  means  of  con- 
ducting war  which  must  ultimately  eat  up  human  freedom  and 
all  human  effort,  and,  as  the  phrase  goes,  destroy  civiliza- 
tion.    ... 

What  has  happened  is  essentially  this,  that  the  natural 
limitations  upon  warfare  which  have  existed  hitherto  appear 
to  have  broken  down.  Hitherto  there  has  been  a  certain 
proportion  between  the  utmost  exertion  of  a  nation  at  war 
and  the  rest  of  its  activities.  The  art  and  methods  of  war 
have  had  a  measurable  relation  to  the  resources  of  the  com- 
munity as  a  whole,  so  that  it  has  been  possible  for  nations  to 
be  well  armed  by  the  standards  of  the  time  and  yet  to  remain 
vigorous  and  healthy  communities,  and  to  wage  successful  wars 
without  exhaustion.     .     .     . 

.  .  .  But  the  outbreak  of  that  struggle  [the  war  of  1914- 
1918]  forced  upon  the  belligerents,  in  spite  of  the  natural  con- 
servatism of  all  professional  soldiers,  a  rapid  and  logical  utili- 
zation of  the  still  largely  neglected  resources  of  mechanical  and 
chemical  science;  they  were  compelled  to  take  up  every  device 
that  offered,  however  costly  it  might  be;  they  could  not  resist 
the  drive  toward  scientific  war  which  they  had  themselves 
released.  In  warfare  the  law  of  the  utmost  immediate  exertion 
rules;  the  combatant  who  does  not  put  in  all  his  possible 
energy  is  lost.  In  four  brief  years,  therefore,  Europe  was 
compelled  to  develop  a  warfare  monstrously  out  of  proportion 
to  any  conceivable  good  which  the  completest  victory  could 
possibly  achieve  for  either  side. 

Here  is  stated  by  Mr.  Wells  and  his  associates  the 
fundamental  argument  for  the  abolition  of  war.  If 
there  were  no  other  argument,  it  alone  should  suffice  to 

s  H.  G.  Wells  and  others,  ' '  The  Idea  of  a  League  of  Nations, ' ' 
Atlantic  Monthly,  January,  1919,  p.  106. 

350 


TOWARD  WORLD  DEMOCRACY 

enlist  the  support  of  everyone.  If  man  cannot  devise 
social  controls  to  keep  up  with  the  progress  of  invention 
and  material  civilization,  he  fails.  In  the  present 
anarchy  of  international  affairs  mankind  is  to  a  large 
degree  the  victim  of  material  forces  which  should  be 
his  most  useful  servants.  To  hold  that  many  of  the 
differences  arising  between  nations  can  be  settled  only 
by  wars  is  to  admit  the  political  and  moral  bankruptcy 
of  western  civilization. 

The  problem  of  war  must  be  attacked  at  its  source. 
Causes  of  wars  must  be  removed  before  disarmament  can 
advance  far.    In  Part  III  of  this  book  some  of  the  causes 
of  international  friction  have  been  discussed.      ihey 
present  problems  which  nations  acting  alone  or  bargain- 
ing  two  by  two,  cannot  solve.     Such  problems  would 
exist  even  in  a  world  where  all  the  nations  were  de- 
mocratized.     In  domestic  affairs  we  have  long  recog- 
nized that  the  judgment  of  an  individual,  a  class  or  a 
locality  is  not  always  to  be  accepted  when  the  nation  s 
interest  is  at  stake.     In  international  affairs  a  similar 
situation  confronts  us.      The  individual  nation  is  not 
always  in  a  position  to  judge  what  will  work  for  inter- 
national harmony  and  goodwill.     Some  form  of  inter- 
national  control  coextensive  with  international  problems 
is  necessary.     It  will  require  time  to  perfect  a  League 
of  Nations,  but  this  should  be  no  excuse  for  not  making 
a  be.'inning  in  international  government.     We  would 
never  have  had  the  American  Union  if  in  1787  powers 
that  no  one  state  could  adequately  handle  had  not  been 
delegated  to  the  Federal  Government.  _ 

Out  of  the  present  chaos  of  national  selfishness  m  in- 
ternational affairs  must  come  a  conscious  international 
direction  of  the  great  forces  of  international  trade  and 
finance  in  the  interests  of  a  better  and  more  peaceful 

351 


I 


COMMERCIAL  POLICY 

world.  Trade  between  nations  must  be  made  fairer  by 
the  elimination  of  unfair  trade  practices  and  transporta- 
tion discriminations.  Such  practices  as  export  bounties, 
the  imitation  of  trade-marks  and  designs,  preferential 
shipping  rates,  and  predatory  price-cutting  must  go. 
The  economic  resources  of  the  world  must  be  developed 
not,  however,  in  the  selfish  interests  of  classes  in  particu- 
lar nations  that  happen  to  control  them,  but  in  the  inter- 
ests of  social  welfare  throughout  the  world.  It  is  of 
international  concern  that  the  resources  of  the  world  are 
made  available  on  equal  terms  to  all.  The  principle  of 
the  open  door  and  of  unconditional  most-favored-nation 
treatment  are  an  essential  basis  in  solving  the  problems 
of  tariff  discriminations  and  colonial  development.  The 
wider  problems  of  financial  control,  investments,  and 
concessions  are  also  international  problems  which  need 
and  must  have  the  regulating  influences  of  international 
machinery. 

The  war  has  demonstrated  that  coooperation  among 
nations  is  practicable.  The  unified  control  of  the 
Allied  armies  was  in  itself  a  signal  achievement.  Co- 
operation in  shipping  and  in  commercial  and  financial 
matter^  was  successful  in  the  Allied  Maritime  Transport 
Council,  the  Allied  Food  Control,  the  Allied  Credit 
Control,  and  in  the  various  committees  for  handling  raw 
materials.*  The  war  in  fact  demonstrated  not  only  that 
the  world  needs,  but  that  it  is  practicable  to  have,  regu- 
lating forces  more  effective  than  those  of  unrestricted 
competition.  It  has  proved  that  the  operation  of  so- 
called  natural  laws  can  be  and  should  be  controlled  and 
directed  by  man-made  organizations.  Production  can 
be  energized  and  made  to  serve  a  social  purpose.  Raw 
materials  and  food  can  be  distributed  where  they  are 


»  Cf.  Chapter  XIII. 


352 


TOWARD  WORLD  DEMOCRACY 

most  needed.  Finances  can  be  controlled  and  shipping 
directed.  Out  of  the  ruins  of  the  war  must  come  a 
practical,  definite  step  toward  international  control, 
which,  as  our  experience  extends  and  the  democracies 
become  better  informed,  should  gradually  develop  into 
a  comprehensive  League  of  Nations  directing  the  eco- 
nomic forces  of  the  world  in  the  interests  of  peace  and 
order. 

In  the  United  States  the  League  to  Enforce  Peace  has 
done  excellent  work  in  assisting  the  American  public  to 
think  internationally.  So  also  has  the  League  of  Free 
Nations  Association.  This  association  declares  that  the 
purpose  of  a  League  of  Nations  should  be  **to  achieve 
for  all  peoples,  great  and  small:  (1)  Security,  the  due 
protection  of  national  existence;  (2)  equality  of  eco- 
nomic opportunity. ''^'^  The  Association  considers  the 
following  principles  indispensable : 

A  universal  association  of  nations  based  upon  the  principle 
that  the  security  of  each  shall  rest  upon  the  strength  of  the 
whole,  pledged  to  uphold  international  arrangements  giving 
equality  of  political  right  and  economic  opportunity,  the 
association  to  be  based  upon  a  constitution  democratic  in 
character,  possessing  a  central  council  or  parliament  as  truly 
representative  as  possible  of  all  the  political  parties  in  the 
constituent  nations,  open  to  any  nation,  and  only  such  nation, 
whose  Government  is  responsible  to  the  people.  The  forma- 
tion of  such  an  association  should  be  an  integral  part  of  the 
settlement  itself  and  its  problems,  and  not  distinct  therefrom. 
It  should  prohibit  the  formation  of  minor  leagues  or  special 
covenants,  or  special  economic  combinations,  boycotts,  or  ex- 
clusions. Differences  between  members  should  be  submitted 
to  its  judicial  bodies.  Its  administrative  machinery  should  be 
built  up  from  the  inter-Allied  bodies  already  in  existence, 
expanded  into  international  bodies  differentiated  in  function 

10  The  Nation  (New  York),  November  30,  1918,  p.  650. 

353 


COMMERCIAL  POLICY 


TOWARD  WORLD  DEMOCRACY 


and  democratized  in  constitution.  The  effective  sanction  of 
the  association  should  not  be  alone  the  combined  military 
power  of  the  whole  used  as  an  instrument  of  repression,  but 
such  use  of  the  world-wide  control  of  economic  resources  as 
would  make  it  more  advantageous  for  a  state  to  become  and 
remain  a  member  of  the  association  and  to  cooperate  with  it, 
than  to  challenge  it. 

Sir  Frederick  Pollock,  the  eminent  authority  on  legal 
matters,  does  not  think  a  league  of  nations  an  undue 
infringement  upon  the  independence  of  nations.     He 


.11 


says: 

It  seems  that  when  we  are  discussing  the  derogation  from 
the  rights  of  an  independent  State  which  must  or  may  be  inci- 
dent to  joining  a  League  of  Nations,  it  will  be  better  to  avoid 
sovereignty  as  an  ambiguous  and  disputed  term,  and  speak 
only  of  independence;  better  still  if  we  can  bear  in  mind  that 
the  question  is  not  of  words,  but  to  what  extent  the  parties 
to  a  League  of  Nations  must  undertake  to  fetter  their  dis- 
cretion in  exercising  the  rights  allowed  to  independent  States 
by  accepted  usage,  and  whether  in  these  necessary  restraints 
there  is  anything  unreasonable  or  excessive,  having  regard  to 
the  importance  of  the  end  to  be  attained.     •    •    • 

Thus  there  seems  to  be  nothing  amounting  to  denial  of  inde- 
pendence in  the  obligations  that  members  of  a  League  of 
Nations  would  have  to  undertake 

(a)  Not   to   make   war   without   the   sanction   of   the 

League; 

(b)  To  take  measures,  by  breaking  off  diplomatic  rela- 
tions, economic  pressure,  or  active  warfare,  against  any 
State  violating  the  foregoing  rule,  or  any  State  external 
to  the  League  attacking  a  member  of  it; 

(c)  To  reduce  its  armaments  as  part  of  a  general 
scheme,  or  to  submit  the  future  production  of  warlike 
material  to  the  control  of  some  common  authority. 

No  international  league  will  spring  into  existence  full- 

11* 'Sovereignty  and  the  League  of  Nations,''  Fortnightly  Ee- 
view,  December,  1918,  p.  813. 

354 


fledged.  A  plan  too  ambitious  for  the  present  time  will 
destroy  itself.  Nations  may  not  immediately  yield  up 
that  degree  of  sovereignty  that  the  more  pretentious 
plans  for  a  League  of  Nations  call  for.  Years  of  educa- 
tion and  experimentation  are  probably  ahead  of  the 
world  before  the  tradition,  the  sanction,  and  the  inter- 
national will  come  into  being  that  are  necessary  to  make 
a  comprehensive  world  state  a  success.  The  immediate 
problem  is  to  determine  the  steps  that  now  should  be 
taken  toward  international  government,  for  real  progress 
depends  on  knowing  how  much  the  world  will  accept  at 
the  present  stage  of  its  development. 

President  Wilson,  as  Chairman  of  the  Commission  on 
the  League  of  Nations,  submitted  on  February  14,  1919, 
at  the  plenary  session  of  the  Peace  Conference  a  pro- 
posed Covenant  of  the  League  of  Nations.  Subsequently 
changes  were  made  and  the  revised  Covenant^^  was  re- 
submitted on  April  28,  1919.  The  action  of  the  League 
is  to  be  effected  through  the  instrumentality  of  an  As- 
sembly, and  of  a  Council  with  a  permanent  Secretariat. 
Except  where  otherwise  expressly  provided  in  the  Cove- 
nant, decisions  at  any  meeting  of  the  Assembly  or  of  the 
Council  require  the  agreement  of  all  the  members  of 
the  League  represented  at  the  meeting.  The  principle 
of  disarmament  is  recognized.  The  members  of  the 
League  undertake  to  respect  and  preserve,  as  against 
external  aggression,  the  territorial  integrity  and  politi- 
cal independence  of  all  members  of  the  League.  Any 
war  or  threat  of  war  is  declared  a  matter  of  concern  to 
the  whole  League.  Provision  is  made  for  the  hearing  of 
justiciable  disputes  before  a  court  of  arbitration  and 

12  See  Appendix  IX  for  full  text  of  the  revised  Covenant  of  the 
League  of  Nations. 

355 


COMMERCIAL  POLICY 

non- justiciable  disputes  before  the  Council  or  the  As- 
sembly. The  covenants  of  the  League  are  to  be  pro- 
tected by  joint  economic  or  military  action  by  the  mem- 
bers, which  may  be  put  in  force  not  only  against  mem- 
bers of  the  League  but  against  outside  nations  that  re- 
fuse to  accept  the  obligations  of  League  membership  for 
the  purpose  of  any  dispute  to  which  they  may  be  a  party. 


The  effective  performance  of  the  League's  functions 
will  require  under  its  permanent  Secretariat  a  series  of 
bureaus  or  commissions.^^  Under  the  control  of  the 
League  are  to  be  placed  *'all  international  bureaus  al- 
ready established  by  general  treaties  if  the  parties  to 
such  treaties  consent''  and  **all  commissions  for  the 
regulation  of  matters  of  international  interest  hereafter 
constituted"  (Article  XXIV).  Not  the  least  of  the 
tasks  of  the  League  of  Nations  will  be  the  adjustment 
of  disputes  between  nations  in  matters  of  commerce, 
trade,  raw  materials,  tariffs,  and  finance.  Many  of  these 
will  not  be  of  sufficient  importance  at  the  time  to 
warrant  a  formal  hearing  before  the  Council  or  a 
court  of  arbitration,  and  yet,  if  left  unadjusted,  they 
may  become  serious  controversies.  In  such  matters  ad- 
visory international  commissions  may  do  effective  ser- 
vice by  investigation,  conference,  and  publicity.  The 
work  of  Federal  commissions  in  the  United  States  in 
adjusting  disputes  arising  between  American  citizens  in 
interstate  commerce  and  even  between  states  furnishes 
ample  precedents  to  justify  similar  commissions  in  inter- 
national affairs.  The  United  States  Tariff  Commission 
illustrates  the  purely  advisory  body.^*      The  Interstate 

13  Such  as  those  discussed  in  Chapters  XII,  XIIT,  XVI,  and 
XVII. 

14  Appendix  IV. 

356 


TOWARD  WORLD  DEMOCRACY 

Commerce  Commission,  the  Federal  Trade  Commission," 
the  United  States  Shipping  Board,  and  the  Federal  Re- 
serve Board  (banking)  have  in  addition  certain  admin- 
istrative or  quasi-judicial  powers.     Experience  of  these 
interstate  commissions  has  shown  that  many  disputes  can 
be  adjusted  and  discriminations  and  other  unfair  prac- 
tices removed  merely  by  publicity  or  by  bringmg  the  in- 
terested parties  together  before  an  impartial  tribunal. 
Long,  expensive  court  proceedings  have  frequently  been 
rendered  unnecessary,  whereas  they  would  have  been 
inevitable  if  the  parties  had  insisted  strictly  on  their  legal 
rights.     In  like  manner  international  commissions  may 
be  constituted  to  assist  in  adjusting  economic  differences 
which  often  arise  between  citizens  of  different  nations. 
At  the  time  of  the  establishment  of  commissions  to 
deal  with  the  economic  problems  that  arise  between 
nations,    principles,    in   the  form   of  substantive  law, 
should  be  laid  down  for  their  guidance.      Discrimina- 
tions in  trade  and  commerce  and  unfair  practices  in  con- 
trolling   raw    materials,    marketing    and    transporting 
goods  should  be  declared  contrary  to  international  law. 
Nations  should  accept  the  principles  of  unconditional 
most-favored-nation  treatment  and  of  the  open  door,  and 
before  any  exceptions  to  equality  of  treatment  are  sanc- 
tioned, the  nations  immediately  concerned  should  sub- 
mit   to    an    international    investigation    to    determine 
whether  or  not  the  proposed  exceptions  are  economically 
justifiable.      Equality  of  treatment  should  be  applied 
not  only  to  markets,  transportation,  and  access  to  raw 
materials,  but  to  the  distribution  of  investments,  loans, 
and   concessions   in   economically   backward   countries. 
Under   the    Covenant   of   the   League   it   is   provided 
(Article  XXIII)    that  through  the  League  provision 

IS  Appendix  X.  ' 

357 


COMMERCIAL  POLICY 


shall  be  made  *'to  secure  and  maintain  freedom  of 
communication  and  of  transit  and  equitable  treatment 
for  the  commerce  of  all  members  of  the  League.'*  This 
is  the  acceptance  of  the  principle  of  equality,  but  it  re- 
quires amplification  in  further  treaties.  In  fact,  some- 
thing in  the  nature  of  an  international  code  for  the 
regulation  of  the  economic  relationships  of  nations  is 
highly  desirable. 

It  will  not  be  sufficient,  however,  to  lay  down  certain 
general  principles  to  regulate  the  relations  of  nations 
without  establishing  machinery  for  interpreting  the 
principles  and  applying  them  to  particular  cases.  This 
should  be  the  work  of  the  proposed  international  com- 
missions. If  nations  are  left  to  dispute  over  the  in- 
terpretation of  general  principles,  progress  will  be  slow. 
Commissions  should  exist  that  will  view  the  problems 
from  the  standpoint  of  the  world's  interest.  They  will 
be  constantly  called  upon  to  determine,  among  other 
things,  whether  a  given  trade  practice  is  unfair,  whether 
discriminations  are  being  made  in  transportation, 
whether  raw  materials  are  being  unfairly  controlled, 
whether  the  most-favored-nation  clause  is  being  properly 
interpreted,  whether  a  given  tariff  practice  is  a  dis- 
crimination, whether  a  nation  is  being  improperly  ex- 
cluded from  financial  opportunities  in  backward  coun- 
tries, or  whether  the  people  in  undeveloped  regions  are 
being  unfairly  exploited. 

In  a  general  way  these  commissions,  discussed  in  some 
detail  in  earlier  chapters,  would  have  two  functions. 
They  would  administer  such  rules,  perhaps  in  the  nature 
of  a  code,  governing  the  economic  relationships  of 
nations  as  were  adopted  in  treaties.  Such  rules  will 
require  constant  construction  and  application  to  par- 
ticular cases.     In  this  respect  these  commissions  would 

358 


TOWARD  WORLD  DEMOCRACY 


have  semi-judicial  powers  as  have  certain  of  the  inter- 
state commissions  of  the  United  States.  Unhampered 
by  the  strict  rules  of  legal  procedure,  they  would  be  able 
to  act  more  quickly  and  effectively  than  a  court,  and  in 
the  majority  of  cases,  as  the  experience  of  the  American 
Federal  commissions  has  demonstrated,  the  mere  bring- 
ing of  the  parties  together  and  an  open  consideration  of 
the  facts  will  solve  most  difficulties  without  formal  pro- 
cedure. Provisions  should  be  made  for  appeal  when 
desired  to  the  international  court  established  by  the 
League.  Again  the  Federal  commissions  of  the  United 
States  provide  a  precedent.  Appeals  may  be  taken  from 
the  orders  of  the  Federal  Trade  Commission  to  the 
United  States  Circuit  Court  of  Appeals^^  or  the  Com- 
mission, in  case  its  orders  are  not  obeyed,  may  enforce 
them  by  filing  a  petition  in  that  court.  Appeals  from 
the  international  commissions  to  the  international  court 
would  provide  added  protection  and  assure  the  consecu- 
tive development  of  international  law  as  it  affects  eco- 
nomic relationships. 

The  second  function  of  these  commissions,  although 
more  general,  is  nevertheless  important.  They  should 
have  wide  powers  of  investigation  and  publicity  relating 
not  only  to  such  matters  as  are  covered  by  rules  laid 
down  in  treaties  but  also  to  all  economic  questions  arising 
between  nations.  Secrecy  and  misinformation  have  con- 
tributed largely  to  illwill  among  peoples.  The  publish- 
ing of  the  facts  by  an  international  commission  would 
tend  to  correct  many  tendencies  which  lead  to  serious 
controversies.  Nations  should  find  a  sense  of  security 
in  the  fact  that  there  are  international  commissions  con- 
sidering the  larger  economic  problems  of  the  world  in 
the  light  of  harmony  and  peace. 

i«  Federal  Trade  Commission  Act,  Section  5.     See  Appendix  X. 

359 


i 


COMMERCIAL  POLICY 

In  the  world  out  of  which  the  Great  War  sprang  as 
inevitably  as  sparks  fly  upward,  a  nation  aggrieved  by 
.  shipping,  trade,  or  financial  discriminations  had  only 
the  alternative  before  it  of  submitting  or  retaliating.  If 
it  submitted,  it  nursed  its  grievance  into  suspicion  and 
hatred;  if  it  retaliated,  the  world  witnessed  a  commer- 
cial war  which  increased  ill-feeling.  The  need  was 
great,  and  now  after  the  war  is  even  greater,  for  inter- 
national commissions  under  the  League  of  Nations  that 
will  investigate  and  offer  a  solution  of  these  commercial 
rivalries  before  they  result  in  conflict. 

One  of  the  dangers  that  may  beset  the  League  of 
Nations  is  that  it  may  become  a  device  for  maintaining 
a  status  quo  —  for  preventing  the  economic  and  national 
development  of  a  growing  people.  If  the  necessity  for 
change  is  not  recognized,  a  League  may  maintain  the 
peace  for  a  few  decades,  but  it  will  ultimately  fail. 
Change  is  inevitable,  and  there  are  ample  opportunities 
for  economic  development  in  the  world  to  satisfy  the 
needs  of  any  democratic  people.  Not  the  least  of  the 
provisions  of  the  constitution  of  the  League,  then, 
is  the  provision  (Article  XIX)  for  the  reconsideration 
by  the  members  of  the  League  of  treaties  that  have  be- 
come inapplicable  and  of  international  conditions  the 
continuance  of  which  may  endanger  the  peace  of  the 
world.  This  provision  qualifies  the  rigor  of  Article  X, 
which,  if  read  alone,  might  be  construed  as  an  effort  to 
maintain  existing  conditions  for  all  time. 

The  Covenant  of  the  League  of  Nations  is  a  decided 
step  toward  world  democracy.  Sceptics  may  doubt  its 
practicability  but  they  must  admit  the  future  dark  if  we 
are  to  return  to  the  unregulated  haphazard  international 
order  of  the  pre-war  period.  And  it  may  succeed.  The 
security  of  nations  requires  that  it  shall.     It  provides 

360 


TOWARD  WORLD  DEMOCRACY 

the  means  of  solving  problems  with  which  no  nation  can 
adequately  deal  alone  and  which,  if  left  unsolved,  may 
destroy  nations  and  the  civilization  they  seek  to  defend. 
'* Where  there  is  no  vision,  the  people  perish.'' 


I 


APPENDICES 


AMERICAN  MANUFACTURING  INDUSTRIES 


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COMMERCIAL  POLICY 


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1 


APPENDIX  II 


RECOMMENDATIONS     OF     THE     ECONOMIC     C0NFERENC3     OF 

THE  ALLIES^  ' 


The  representatives  of  the  Allied  Governments  have  met  at 
Paris  under  the  presidency  of  M.  Clementel,  Minister  oi  Com- 
merce, on  June  14,  15,  16  and  17,  1916,  for  the  purpose  of 
fulfilling  the  mandate  given  to  them  by  the  Paris  Conference 
of  March  28,  1916,  of  giving  practical  expression  to  their 
solidarity  of  views  and  interests,  and  of  proposing  :o  their 
respective  Governments  the  appropriate  measures  for  realising 
this  solidarity. 

II 

They  declare  that  after  forcing  upon  them  the  military  con- 
test in  spite  of  all  their  efforts  to  avoid  the  conflict,  the  Em- 
pires of  Central  Europe  are  to-day  preparing,  in  concert  with 
their  Allies,  for  a  contest  on  the  economic  plane,  which  will 
not  only  survive  the  re-establishment  of  peace,  but  will  at 
that  moment  attain  its  full  scope  and  intensity. 

Ill 

They  cannot  therefore  conceal  from  themselves  that  the 
agreements  which  are  being  prepared  for  this  purpose  between 
their  enemies  have  the  obvious  object  of  establishing  the 
domination  of  the  latter  over  the  production  and  the  markets 
of  the  whole  world  and  of  imposing  on  other  countries  an 
intolerable  yoke. 

In  face  of  so  grave  a  peril  the  Representatives  of  the  Allied 
Governments  consider  that  it  has  become  their  duty,  on  grounds 
of  necessary  and  legitimate  defence,  to  adopt  and  realise  from 

I  Resolutions  adopted  by  the  representatives  of  France,  Great 
Britain,  Belgium,  Italy,  Japan,  Portugal,  Russia,  and  Serbia  at 
the  Economic  Conference  which  sat  in  Paris  June  14-17,  1916. 
English  text,  reprinted  from  British  Board  of  Trade  circular  Cd. 
8271,  June  21,  1916. 

368 


\lf 


ECONOMIC  CONFERENCE  OF  THE  ALLIES 

\ 
now  onward  all  the  measures  requisite  on  the  one  hand  to 
secire  for  themselves  and  for  the  whole  of  the  markets  of 
neutral  countries  full  economic  independence  and  respect  for 
souad  commercial  practice,  and  on  the  other  hand  to  facilitate 
the  organisation   on   a   permanent   basis   of   their   economic 

alliance. 

For  this  purpose  the  Representatives  of  the  Allied  Govern- 
ments have  decided  to  submit  for  the  approval  of  those  Gov- 
ernments the  following  resolutions: — 


I 


A 

Measures  for  the  War  Period 


The   laws   and   regulations   prohibiting   trading   with   the 
enemy  shall  be  brought  into  accord. 
For  this  purpose : 
A.—  The  Allies  will  prohibit  their  own  subjects  and  citi- 
zens and  all  persons  residing  in  their  territories 
from  carrying  on  any  trade  with : — 

1.  The  inhabitants  of  enemy  countries  whatever  their 

nationality. 

2.  Enemy  subjects  wherever  resident. 

3.  Persons,  firms  and  companies  whose  business  is  con- 

trolled wholly  or  partially  by  enemy  subjects  or  is 
subject  to  enemy  influence  and  whose  names  are 
included  in  a  special  list. 

B, —  They  will  prohibit  the  importation  into  their  terri- 
tories of  all  goods  originating  in  or  coming  from 
enemy  countries. 

C. —  They  will  devise  means  of  establishing  a  system 
enabling  contracts  entered  into  with  enemy  subjects 
and  injurious  to  national  interests  to  be  cancelled 
unconditionally. 

II 

Business  undertakings  owned  or  operated  by  enemy  subjects 
in  the  territories  of  the  Allies  will  all  be  sequestrated  or  placed 
under  control ;  measures  will  be  taken  for  the  purpose  of  wind- 
ing up  some  of  these  undertakings  and  of  realising  their  assets, 

369 


i 


COMMERCIAL  POLICY 

the  proceeds  of  such  realisation  remaining  sequestrated  or 
under  control. 

! 

in 

In  addition  to  the  export  prohibitions  which  are  necessitated 
by  the  internal  situation  of  each  of  the  Allied  countries  the 
Allies  will  complete  the  measures  already  taken  for  tha  re- 
striction of  enemy  supplies,  both  in  the  mother  countries  and 
in  the  Dominions,  Colonies  and  Protectorates: — 

1.  By  unifying  the  lists  of  contraband  and  of   export 

prohibition,  and  particularly  by  prohibiting  tie  ex- 
port of  all  commodities  declared  absolute  or  condi- 
tional contraband; 

2.  By  making  the  grant  of  licences  for  export  to  neutral 

countries  from  which  export  to  enemy  territories 
might  take  place  conditional  upon  the  existence  in 
such  countries  of  control  organisations  approved  by 
the  Allies;  or,  in  the  absence  of  such  organisations, 
upon  special  guarantees  such  as  the  limitation  of  the 
quantities  exported,  supervision  by  Allied  consular 
officers,  etc. 

B 

Transitory  Measures  for  the  Period  of  Commercial,  In- 
dustrial, Agricultural  and  Maritime  Reconstruction 
OF  THE  Allied  Countries 


The  Allies. declare  their  common  determination  to  ensure  the 
re-establishment  of  the  countries  suffering  from  acts  of  de- 
struction, spoliation  and  unjust  requisition,  and  decide  to  join 
in  devising  means  to  secure  the  restoration  to  those  countries, 
as  a  prior  claim,  of  their  raw  materials,  industrial  and  agricul- 
tural plant,  stock  and  mercantile  fleet,  or  to  assist  them  to  re- 
equip  themselves  in  these  respects. 

n 

Whereas  the  war  has  put  an  end  to  all  the  treaties  of  com- 
merce between  the  Allies  and  the  Enemy  Powers,  and  whereas 

370 


ECONOMIC  CONFERENCE  OP  THE  ALLIES 

it  is  of  essential  importance  that,  during  the  period  of  economic 
reconstruction  which  will  follow  the  cessation  of  hostilities,  the 
liberty  of  none  of  the  Allies  should  be  hampered  by  any  claim 
put  forward  by  the  Enemy  Powers  to  most-favoured-nation 
treatment,  the  Allies  agree  that  the  benefit  of  this  treatment 
shall  not  be  granted  to  those  Powers  during  a  number  of 
years  to  be  fixed  by  mutual  agreement  among  themselves. 

During  this  number  of  years  the  Allies  undertake  to  assure 
to  each  other  so  far  as  possible  compensatory  outlets  for  trade 
in  case  consequences  detrimental  to  their  commerce  result  from 
the  application  of  the  undertaking  referred  to  in  the  preceding 
paragraph. 

Ill 

The  Allies  declare  themselves  agreed  to  conserve  for  the 
Allied  countries,  before  all  others,  their  natural  resources  dur- 
ing the  whole  period  of  commercial,  industrial,  agricultural 
and  maritime  reconstruction,  and  for  this  purpose  they  under- 
take to  establish  special  arrangements  to  facilitate  the  inter- 
change of  these  resources. 

IV 

In  order  to  defend  their  commerce,  their  industry,  their 
agriculture  and  their  navigation  against  economic  aggression 
resulting  from  dumping  or  any  other  mode  of  unfair  com- 
petition the  Allies  decide  to  fix  by  agreement  a  period  of  time 
during  which  the  commerce  of  the  enemy  powers  shall  be  sub- 
mitted to  special  treatment  and  the  goods  originating  in  their 
countries  shall  be  subjected  either  to  prohibitions  or  to  a 
special  regime  of  an  effective  character. 

The  Allies  will  determine  by  agreement  through  diplomatic 
channels  the  special  conditions  to  be  imposed  during  the  above- 
mentioned  period  on  the  ships  of  the  enemy  powers. 


The  Allies  will  devise  the  measures  to  be  taken  jointly  or 
severally  for  preventing  enemy  subjects  from  exercising,  in 
their  territories,  certain  industries  or  professions  which  con- 
cern national  defence  or  economic  independence. 

371 


\r^ 


COMMERCIAL  POLICY 

C 

Permanent  Measures  op  Mutual  Assistance  and  Collabo- 
ration AMONG  the  Allies 

I 

The  Allies  decide  to  take  tlie  necessary  steps  without  delay 
to  render  themselves  independent  of  the  enemy  countries  in 
so  far  as  regards  the  raw  materials  and  manufactured  articles 
essential  to  the  normal  development  of  their  economic  activities. 

These  steps  should  be  directed  to  assuring  the  independence 
of  the  Allies  not  only  so  far  as  concerns  their  sources  of  sup- 
ply, but  also  as  regards  their  financial,  commercial  and  mari- 
time organisation. 

The  Allies  will  adopt  the  methods  which  seem  to  them  most 
suitable  for  the  carrying  out  of  this  resolution,  according  to 
the  nature  of  the  commodities  and  having  regard  to  the  prin- 
ciples which  govern  their  economic  policy. 

They  may,  for  example,  have  recourse  either  to  enterprises 
subsidised,  directed  or  controlled  by  the  Governments  them- 
selves, or  to  the  grant  of  financial  assistance  for  the  encourage- 
ment of  scientific  and  technical  research  and  the  development 
of  national  industries  and  resources;  to  customs  duties  or  pro- 
hibitions of  a  temporary  or  permanent  character;  or  to  a  com- 
bination of  these  different  methods. 

Whatever  may  be  the  methods  adopted,  the  object  aimed  at 
by  the  Allies  is  to  increase  production  within  their  territories 
as  a  whole  to  a  sufficient  extent  to  enable  them  to  maintain  and 
develop  their  economic  position  and  independence  in  relation 
to  enemy  countries. 

II 

lu  order  to  permit  the  interchange  of  their  products,  the 
Allies  undertake  to  adopt  measures  for  facilitating  their 
mutual  trade  relations  both  by  the  establishment  of  direct  and 
rapid  land  and  sea  transport  services  at  low  rates,  and  by  the 
extension  and  improvement  of  postal,  telegraphic  and  other 
communications. 

Ill 

The  Allies  undertake  to  convene  a  meeting  of  technical 
delegates  to  draw  up  measures  for  the  assimilation,  so  far  as 

372 


ECONOMIC  CONFERENCE  OF  THE  ALLIES 

may  be  possible,  of  their  laws  governing  patents,  indications 
of  origin  and  trade  marks. 

In  regard  to  patents,  trade  marks  and  literary  and  artistic 
copyright  which  have  come  into  existence  during  the  war  in 
enemy  countries,  the  Allies  will  adopt,  so  far  as  possible,  an 
identical  procedure,  to  be  applied  as  soon  as  hostilities  cease. 

This  procedure  will  be  elaborated  by  the  technical  delegates 
of  the  Allies. 

D 

Whereas  for  the  purposes  of  their  common  defence  against 
the  enemy  the  Allied  Powers  have  agreed  to  adopt  a  common 
economic  policy,  on  the  lines  laid  down  in  the  Resolutions 
which  have  been  passed,  and  whereas  it  is  recognised  that  the 
effectiveness  of  this  policy  depends  absolutely  upon  these 
Resolutions  being  put  into  operation  forthwith,  the  Repre- 
sentatives of  the  Allied  Governments  undertake  to  recommend 
their  respective  Governments  to  take  without  delay  all  the 
measures,  whether  temporary  or  permanent,  requisite  for  giv- 
ing full  and  complete  effect  to  this  policy  forthwith,  and  to 
communicate  to  each  other  the  decisions  arrived  at  to  attain 
that  object. 


\ 


JAPAN'S  DEMANDS  ON  CHINA 


APPENDIX  III 

japan's   demands   on   china,    JANUARY   18,    1915^ 

Section  I 

The  Japanese  Government  and  the  Chinese  Government,  be- 
ing desirous  of  maintaining  the  general  peace  of  eastern  Asia 
and  further  strengthening  the  friendly  relations  and  good 
neighborhood  existing  between  the  two  nations,  agree  to  the 
following  articles: 

Article  1.  The  Chinese  Government  engages  to  give  full 
assent  to  aU  matters  upon  which  the  Japanese  Government 
may  hereafter  agree  with  the  German  Government  relating  to 
the  disposition  of  all  rights,  interests,  and  concessions  which, 
by  virtue  of  treaties  or  otherwise,  Germany  now  possesses  in 
relation  to  the  Province  of  Shantung. 

Article  2.  The  Chinese  Government  engages  that  within  the 
Province  of  Shantung  and  along  its  coast  no  territory  or 
island  will  be  ceded  or  leased  to  a  third  power  under  any  pre- 
text whatever. 

Article  3.  The  Chinese  Government  consents  to  Japan's 
building  a  railway  from  Chefoo  or  Lungkow  to  join  the  Kiau- 
Chau-Tsinan  railway. 

Article  4.  The  Chinese  Government  engages,  in  the  interest 
of  trade  and  for  the  residence  of  foreigners,  to  open  by  itself, 
as  soon  as  possible,  certain  important  cities  and  towns  in  the 
Province  of  Shantung  as  commercial  ports.     What  places  are 

/in?i?°^^^  ^*  Hornbeck,  Contemporary  Politics  in  the  Far  East 
(1916),  pages  307-11.  Mr.  Hornbeck,  speaking  of  these  ^'de- 
mands,  says:  *'In  the  course  of  the  contest  which  ensued  and 
which  was  brought  to  a  close  — in  some  respects  only  — by  the 
signing  of  treaties  on  May  25,  the  substance  of  Groups  I  and  II 
ot  these  demands  underwent  practically  no  chancres  Certain 
modifications  were  made  in  Group  III.  Group  iv'was  retained 
as  It  stood.  And  it  was  ultimately  agreed  that  the  discussion  of 
^roup  V,  with  the  exception  of  the  provision  regarding  Fukien 
I'rovmce  — which  was  retained  —  should  be  postponed.'' 

374 


II 


to  be  opened  are  to  be  decided  upon  by  the  two  governments  by 
separate  agreement. 

Section  II 

The  Japanese  Government  and  the  Chinese  Government, 
since  the  Chinese  Government  has  always  recognized  the 
special  position  enjoyed  by  Japan  in  South  Manchuria  and 
Eastern  Inner  Mongolia,  agree  to  the  following  articles : 

Article  1.  The  two  contracting  parties  mutually  agree  that 
the  term  of  lease  of  Port  Arthur  and  Dalny,  and  the  term  of 
lease  of  the  South  Manchurian  railway  and  the  Antung- 
Mukden  railway,  shall  be  extended  to  the  period  of  ninety-nine 
years. 

Article  2.  Japanese  officials  and  common  people  in  South 
Manchuria  and  Eastern  Inner  Mongolia  shall  have  the  right 
to  lease  or  own  land  required  either  for  erecting  suitable 
buildings  for  trade  and  manufacture  or  for  farming. 

Article  3.  Japanese  officials  and  common  people  shall  be 
free  to  reside  and  travel  in  South  Manchuria  and  Eastern 
Mongolia,  and  to  engage  in  business  and  in  manufacture  of 
any  kind  whatsoever. 

Article  4.  The  Chinese  Government  agrees  to  grant  to 
Japanese  officials  and  common  people  the  mining  rights  of  all 
mines  in  South  Manchuria  and  Eastern  Inner  Mongolia. 
What  mines  are  to  be  opened  shall  be  decided  upon  by  the  two 
Governments  jointly. 

Article  5.  The  Chinese  Government  agrees  that  in  respect 
of  the  two  cases  mentioned  herein  below  the  consent  of  the 
Japanese  Government  shall  first  be  obtained  before  action  shall 
be  taken: 

(a)  Whenever  permission  is  granted  to  a  subject  of  a  third 
power  to  build  a  railway  or  to  make  a  loan  with  a  third  power 
for  the  purpose  of  building  a  railway  in  South  Manchuria  or 
Eastern  Inner  Mongolia. 

(6)  Whenever  a  loan  is  to  be  made  with  a  third  power 
pledging  the  local  taxes  of  South  Manchuria  or  Eastern  Inner 
Mongolia  as  security. 

375 


r 

i 


COMMERCIAL  POLICY 

Article  6.  The  Chinese  Government  agrees  that  if  the 
Chinese  Government  employs  political,  financial,  or  military 
advisers  or  instructors  in  South  Manchuria  or  Eastern  Inner 
Mongolia  the  Japanese  Government  shall  first  be  consulted. 

Article  7.  The  Chinese  Government  agrees  that  the  control 
and  management  of  the  Kirin-Chang-Chun  railway  shall  be 
handed  over  to  the  Japanese  Government  for  a  term  of  ninety- 
nine  years,  dating  from  the  signing  of  this  agreement. 

Section  III 

The  Japanese  Government  and  the  Chinese  Government,  see- 
ing that  Japanese  financiers  and  the  Hanyehping  Company 
have  close  relations  with  each  other  at  present,  and  desiring 
that  the  common  interests  of  the  two  nations  shall  be  advanced, 
agree  to  the  following  articles: 

Article  1.  The  two  contracting  parties  mutually  agree  that 
when  the  opportune  moment  arrives  the  Hanyehping  Com- 
pany shall  be  made  a  joint  concern  of  the  two  nations,  and 
they  further  agree  that  without  the  previous  consent  of  Japan, 
China  shall  not  by  her  own  act  dispose  of  the  rights  and  prop- 
erty, of  whatsoever  nature,  of  the  said  Company,  nor  cause 
the  said  Company  to  dispose  freely  of  the  same. 

Article  2.  The  Chinese  Government  agrees  that  all  mines 
in  the  neighborhood  of  those  owned  by  the  Hanyehping  Com- 
pany shall  not  be  permitted,  -v^ithout  the  consent  of  the  said 
Company,  to  be  worked  by  other  persons  outside  of  the  said 
Company,  and  further  agrees  that  if  it  is  desired  to  carry  out 
any  undertaking  which,  it  is  apprehended,  may  directly  or 
indirectly  affect  the  interests  of  the  said  Company,  the  consent 
of  said  Company  shall  first  be  obtained. 


JAPAN'S  DEMANDS  ON  CHINA 

Section  V 

Article  1.     The  Chinese  Government  shall  employ  influential 
Japanese  as  advisers  in  political,  financial  and  military  affairs. 
Article  2.    Japanese  hospitals,  churches  and  schools  in  the 
interior  of  China  shall  be  granted  the  right  of  owning  land. 

Article  3.  Inasmuch  as  the  Japanese  Government  and  the 
Chinese  Government  have  had  many  cases  of  disputes  between 
Japanese  and  Chinese  police  to  settle,  cases  which  have  caused 
no  little  misunderstanding,  it  is  for  this  reason  necessary  that 
the  police  departments  of  the  important  places  in  China  shall 
be  jointly  administered  by  Japanese  and  Chinese,  or  that  the 
Chinese  police  departments  of  these  places  shall  employ  numer- 
ous Japanese,  so  that  they  may  at  the  same  time  help  to  plan 
for  the  improvement  of  the  Chinese  police  service. 

Article  4.  China  shall  purchase  from  Japan  a  fixed  amount 
of  munitions  of  war,  say  50  per  cent,  or  more  of  what  is 
needed  by  the  Chinese  Government,  or  there  shall  be  estab- 
lished in  China  a  Sino-Japanese  jointly  worked  arsenal. 
Japanese  technical  experts  are  to  be  employed  and  Japanese 
material  to  be  purchased. 

Article  5.  China  agrees  to  grant  to  Japan  the  right  of  con- 
structing a  railway  connecting  Wuchang  with  Kiukiang  and 
Nanchang,  another  line  between  Nanchang  and  Hangchou,  and 
another  between  Nanchang  and  Chao-chou. 

Article  6.     If  China  needs  foreign  capital  to  work  mines, 
build  railways,  and  construct  harbor  works,  including  dock- 
yards, in  the  Province  of  Fukien,  Japan  shall  be  first  consulted. 
Article  7.     China  agrees  that  Japanese  subjects  shall  have 
the  right  to  propagate  religious  doctrines  in  China. 


Section  IV 

The  Japanese  Government  and  the  Chinese  Government,  with 
the  object  of  effectively  preserving  the  territorial  integrity  of 
China,  agree  to  the  following  articles: 

The  Chinese  Government  engages  not  to  cede  or  lease  to  a 
third  power  any  harbor,  bay,  or  island  along  the  coast  of  China. 

376 


w 


Mil 

'til 


(■     ! 


APPENDIX  IV 

ACT    CREATING    THE    UNITED   STATES    TARIFF    COMMISSION^ 

Sec.  700.  That  a  commission  is  hereby  created  and  estab- 
lished, to  be  known  as  the  United  States  Tariif  Commission 
(hereinafter  in  this  title  referred  to  as  the  commission),  which 
shall  be  composed  of  six  members,  who  shall  be  appointed  by 
the  President,  by  and  with  the  advice  and  consent  of  the 
Senate,  not  more  than  three  of  whom  shall  be  members  of  the 
same  political  party.  In  making  said  appointments  members 
of  different  political  parties  shall  alternate  as  nearly  as  may 
be  practicable.  The  first  members  appointed  shall  continue  in 
office  for  terms  of  two,  four,  six,  eight,  ten,  and  twelve  years, 
respectively,  from  the  date  of  the  passage  of  this  act,  the  term 
of  each  to  be  designated  by  the  President,  but  their  successors 
shall  be  appointed  for  terms  of  twelve  years,  except  that  any 
person  chosen  to  fill  a  vacancy  shall  be  appointed  only  for  the 
unexpired  term  of  the  member  whom  he  shall  succeed.  The 
President  shall  designate  annually  the  chairman  and  vice 
chairman  of  the  commission.  No  member  shall  engage  actively 
in  any  other  business,  function,  or  employment.  Any  member 
may  be  removed  by  the  President  for  inefficiency,  neglect  of 
duty,  or  malfeasance  in  office.  A  vacancy  shall  not  impair 
the  right  of  the  remaining  members  to  exercise  all  the  powers 
of  the  commission,  but  no  vacancy  shall  extend  beyond  any 
session  of  Congress. 

Sec.  701.  That  each  commissioner  shall  receive  a  salary  of 
$7,500  per  year,  payable  monthly.  The  commission  shall  ap- 
point a  secretary,  who  shall  receive  a  salary  of  $5,000  per  year, 
payable  in  like  manner,  and  it  shall  have  authority  to  employ 
and  fix  the  compensations  of  such  special  experts,  examiners, 
clerks,  and  other  employees  as  the  commission  may  from  time 
to  time  find  necessary  for  the  proper  performance  of  its  duties. 

With  the  exception  of  the  secretary,  a  clerk  to  each  com- 
missioner,  and  such  special  experts  as  the  commission  may 

lAct  of  Congress  approved  September  8,  1916,  entitled  ''An 
Act  To  increase  the  revenue,  and  for  other  purposes,"  Title  VII. 

378 


TAEIFF  COMMISSION  ACT 

from  time  to  time  find  necessary  for  the  conduct  of  its  work, 
all  employees  of  the  commission  shall  be  appointed  from  lists 
of  eligibles  to  be  supplied  by  the  Civil  Service  Commission  and 
in  accordance  with  the  civil-service  law. 

AH  of  the  expenses  of  the  commission,  including  all  neces- 
sary expenses  for  transportation  incurred  by  the  commission- 
ers or  by  their  employees  under  their  orders  in  making  any 
investigation  or  upon  official  business  in  any  other  places  than 
at  their  respective  headquarters,  shall  be  allowed  and  paid  on 
the  presentation  of  itemized  vouchers  therefor  approved  by 
the  commission. 

Unless  otherwise  provided  by  law,  the  commission  may  rent 
suitable  offices  for  its  use,  and  purchase  such  furniture,  equip- 
ment, and  supplies  as  may  be  necessary. 

The  principal  office  of  the  commission  shall  be  in  the  city 
of  Washington,  but  it  may  meet  and  exercise  all  its  powers  at 
any  other  place.  The  commission  may,  by  one  or  more  of  its 
members,  or  by  such  agents  as  it  may  designate,  prosecute  any 
inquiry  necessary  to  its  duties  in  any  part  of  the  United  States 
or  in  any  foreign  country. 

Sec  702.  That  it  shall  be  the  duty  of  said  commission  to 
investigate  the  administration  and  fiscal  and  industrial  effects 
of  the  customs  laws  of  this  country  now  in  force  or  which  may 
be  hereafter  enacted,  the  relations  between  the  rates  of  duty 
on  raw  materials  and  finished  or  partly  finished  products,  the 
effects  of  ad  valorem  and  specific  duties  and  of  compound 
specific  and  ad  valorem  duties,  all  questions  relative  to  the  ar- 
rangement of  schedules  and  classification  of  articles  in  the 
several  schedules  of  the  customs  law,  and,  in  general,  to  in- 
vestigate the  operation  of  customs  laws,  including  their  rela- 
tion to  the  Federal  revenues,  their  effect  upon  the  industries 
and  labor  of  the  country,  and  to  submit  reports  of  its  investiga- 
tions as  hereafter  provided. 

Sec  703.  That  the  commission  shall  put  at  the  disposal  of 
the  President  of  the  United  States,  the  Committee  on  Ways 
and  Means  of  the  House  of  Representatives,  and  the  Com- 
mittee on  Finance  of  the  Senate,  whenever  requested,  all  in- 
formation at  its  command,  and  shall  make  such  investigations 
and  reports  as  may  be  requested  by  the  President  or  by  either 
of  said  committees  or  by  either  branch  of  the  Congress,  and 

379 


COMMERCIAL  POLICY 


TARIFF  COMMISSION  ACT 


shall  report  to  Congress  on  the  first  Monday  of  December  of 
each  year  hereafter  a  statement  of  the  methods  adopted  and 
all  expenses  incurred,  and  a  summary  of  all  reports  made 
during  the  year. 

Sec.  704.  That  the  commission  shall  have  power  to  investi- 
gate the  tariff  relations  between  the  United  States  and  foreign 
countries,  commercial  treaties,  preferential  provisions,  eco- 
nomic alliances,  the  effect  of  export  bounties  and  preferential 
transportation  rates,  the  volume  of  importations  compared 
with  domestic  production  and  consumption,  and  conditions, 
causes,  and  effects  relating  to  competition  of  foreign  industries 
with  those  of  the  United  States,  including  dumping  and  cost 
of  production. 

Sec.  705.  That  upon  the  organization  of  the  commission,  the 
cost  of  Production  Division  in  the  Bureau  of  Foreign  and 
Domestic  Commerce  in  the  Department  of  Commerce  shall  be 
transferred  to  said  commission,  and  the  clerks  and  employees 
of  said  division  shall  be  transferred  to  and  become  clerks  and 
employees  of  the  commission,  and  all  records,  papers,  and 
property  of  the  said  division  and  of  the  former  tariff  board 
shall  be  transferred  to  and  become  the  records,  papers,  and 
property  of  the  commission. 

Sec.  706.  That  for  the  purposes  of  carrying  this  title  into 
effect  the  commission  or  its  duly  authorized  agent  or  agents 
shall  have  access  to  and  the  right  to  copy  any  document,  paper, 
or  record,  pertinent  to  the  subject  matter  under  investigation, 
in  the  possession  of  any  person,  firm,  copartnership,  corpora- 
tion, or  association  engaged  in  the  production,  importation,  or 
distribution  of  any  article  under  investigation,  and  shall  have 
power  to  summon  witnesses,  take  testimony,  administer  oaths, 
and  to  require  any  person,  firm,  copartnership,  corporation,  or 
association  to  produce  books  or  papers  relating  to  any  matter 
pertaining  to  such  investigation.  Any  member  of  the  com- 
mission may  sign  subpoenas,  and  members  and  agents  of  the 
commission,  when  authorized  by  the  commission,  may  admin- 
ister oaths  and  affirmations,  examine  witnesses,  take  testimony, 
and  receive  evidence. 

Such  attendance  of  witnesses  and  the  production  of  such 
documentary  evidence  may  be  required  from  any  place  in  the 
United  States  at  any  designated  place  of  hearing.     And  in  case 

380 


of  disobedience  to  a  subpoena  the  commission  may  invoke  the 
aid  of  any  district  court  of  the  United  States  in  requiring 
the  attendance  and  testimony  of  witnesses  and  the  production 
of  documentary  evidence,  and  such  court  within  the  jurisdiction 
of  which  such  inquiry  is  carried  on  may,  in  case  of  contumacy 
or  refusal  to  obey  a  subpoena  issued  to  any  corporation  or 
other  person,  issue  an  order  requiring  such  corporation  or 
other  person  to  appear  before  the  commission,  or  to  produce 
documentary  evidence  if  so  ordered,  or  to  give  evidence  touch- 
ing the  matter  in  question ;  and  any  failure  to  obey  such  order 
of  the  court  may  be  punished  by  such  court  as  a  contempt 

thereof. 

Upon  the  application  of  the  Attorney  General  of  the  United 
States,  at  the  request  of  the  commission,  any  such  court  shall 
have  jurisdiction  to  issue  writs  of  mandamus  commanding  com- 
pliance with  the  provisions  of  this  title  or  any  order  of  the 
commission  made  in  pursuance  thereof. 

The  commission  may  order  testimony  to  be  taken  by  deposi- 
tion in  any  proceeding  or  investigation  pending  under  this 
title  at  any  stage  of  such  proceeding  or  investigation.  Such 
depositions  may  be  taken  before  any  person  designated  by  the 
commission  and  having  power  to  administer  oaths.  Such  testi- 
mony shall  be  reduced  to  writing  by  the  person  taking  the 
deposition,  or  under  his  direction,  and  shall  then  be  subscribed 
by  the  deponent.  Any  person,  firm,  copartnership,  corpora- 
tion, or  association  may  be  compelled  to  appear  and  depose 
and  to  produce  documentary  evidence  in  the  same  manner  as 
witnesses  may  be  compelled  to  appear  and  testify  and  produce 
documentary  evidence  before  the  commission,  as  hereinbefore 
provided. 

Witnesses  summoned  before  the  commission  shall  be  paid 
the  same  fees  and  mileage  that  are  paid  witnesses  in  the  courts 
of  the  United  States,  and  witnesses  whose  depositions  are 
taken  and  the  persons  taking  the  same,  except  employees  of 
the  commission,  shall  severally  be  entitled  to  the  same  fees  and 
mileage  as  are  paid  for  like  services  in  the  courts  of  the  United 
States:  Provided,  That  no  person  shall  be  excused,  on  the 
ground  that  it  may  tend  to  incriminate  him  or  subject  him  to 
a  penalty  or  forfeiture,  from  attending  and  testifjang,  or 
producing  books,  papers,  documents,  and  other  evidence,  in 

381 


^ 


COMMERCIAL  POLICY 


TARIFF  COMMISSION  ACT 


M 


obedience  to  the  subpoena  of  the  commission;  but  no  natural 
person  shall  be  prosecuted  or  subjected  to  any  penalty  or  for- 
feiture for  or  on  account  of  any  transaction,  matter,  or  thing 
as  to  which,  in  obedience  to  a  subpoena  and  under  oath,  he 
may  so  testify  or  produce  evidence,  except  that  no  person  shall 
be  exempt  from  prosecution  and  punishment  for  perjury  com- 
mitted in  so  testifying. 

Sec.  707.  That  the  said  commission  shall  in  appropriate 
matters  act  in  conjunction  and  cooperation  with  the  Treasury 
Department,  the  Department  of  Commerce,  the  Federal  Trade 
Commission,  or  any  other  departments,  or  independent  estab- 
lishments of  the  Government,  and  such  departments  and  inde- 
pendent  establishments  of  the  Government  shall  cooperate 
lully  with  the  commission  for  the  purposes  of  aiding  and  as- 
sisting m  its  work,  and,  when  directed  by  the  President,  shall 
lurnish  to  the  commission,  on  its  request,  all  records,  papers, 
and  information  m  their  possession  relating  to  any  of  the  sub- 
jects of  investigation  by  said  commission  and  shall  detail,  from 
time  to  time,  such  officials  and  employees  to  said  commission 
as  he  may  direct. 

Sec.  708.  It  shall  be  unlawful  for  any  member  of  the  United 
btates   Tariff   Commission,   or  for  any  employee,   agent,  or 
clerk  of  said  commission,  or  any  other  officer  or  employee  of 
the  United  States,  to  divulge,  or  to  make  known  in  any  man- 
ner whatever  not  provided  for  by  law,  to  any  person,  the  trade 
secrets  or  processes  of  any  person,  firm,  copartnership,  cor- 
poration, or  association  embraced  in  any  examination  or  in- 
vestigation conducted  by  said  commission,  or  by  order  of  said 
commission,  or  by  order  of  any  member  thereof.     Any  offense 
against  the  provisions  of  this  section  shall  be  a  misdemeanor 
and  be  punished  by  a  fine  not  exceeding  $1,000,  or  by  imprison- 
ment not  exceeding  one  year,  or  both,  in  the  discretion  of  the 
court,  and  such  offender  shall  also  be  dismissed  from  office  or 
discharged   from   employment.      The  commission   shall  have 
power  to  investigate  the  Paris  Economy  Pact  and  similar 
organizations  and  arrangements  in  Europe. 

Sec.  709.  That  there  is  hereby  appropriated,  for  the  purpose 
of  defraying  the  expense  of  the  establishment  and  maintenance 
of  the  commission,  including  the  payment  of  salaries  herein 
authorized,  out  of  any  money  in  the  Treasury  of  the  United 

382 


States  not  otherwise  appropriated,  the  sum  of  $300,000  for  the 
fiscal  year  ending  June  thirtieth,  nineteen  hundred  and  seven- 
teen, and  for  each  fiscal  year  thereafter  a  like  sum  is  authorized 
to  be  appropriated. 


TARIFF  BOARD  AND  WOOL  LEGISLATION 


APPENDIX  V 

THE    TARIFF    BOARD    AND    WOOL    LEGISLATION^ 
William  Smith  Culbeetson 

During  the  second  session  of  the  Sixty-second  Congi-ess  no 
^ss  than  SIX  different  bills  were  offered  in  the  Senate  and 
House  as  revisions  of  the  tariff  schedule  levying  duties  on 
wool  and  manufactures  of  wool.  All  of  these  bills,  although 
differing  widely  from  each  other,  were  claimed  by  their  f ramers 

If  il^T     X""'  Z  ^*  ^'"'^  ""^  ^*  ^^^•^^'^^^  ^it^^  the  findings 
of  the  Tariff  Board^  in  its  report  on  Schedule  K.     Even  the 

cluZn"^    '  '"^  ^''''"  ^^^^'^  *'''  *^'''  ^^P^""*  ^^'^  '"^  '''''" 

So  far  as  conclusions  can  be  drawn  from  the  board's  reuorf   it 


r,lv1  ^/*.'^^®  written  by  the  author  of  this  book  in  1913    first 
published  m  the  American  Economic  Review  for  March    1913   and 

"o    sT'esJ  S'^^'l  f %^^"^«  ''  Representatives'  Document 
TnrifF'Trf^  Congress,  1st  Session.      In  the  sixth  edition  of  his 
Tariff  History  of  the  United  States,  Dr.  Prank  W    Tauss^^    in 
discussing    he  tariff  act  of  1913,  refers  to  this  artfcle  and'^sa^s 
(p.  4ol ) :     * '  It  would  seem  that  (in  the  case  of  domestic  woolen.^ 
the  Democrats  strove  to   apply  the  competitive  Sk)irThi 
inquiries  of  the  defunct  Tariff^  Board,  and  some  further  ialc Jit 
tions   based  upon   them,  indicated   that  a  duty  or35   T)er   .in; 
would  correspond  roughly  to  the  difference  ?n^e~s^of  pro 
due  ion   between   American   and   foreign  manufacturers!-      ?^he' 
lanff  Board  referred  to  is  not  the  Dre^enf  Ton-fF  nr!Z    '    •       T    . 

the  Board  established  by  Pre"sLon7SrLTirr1heTa"S"reA^^ 
"NeUher'Z  Tariff  ^Z  ^1'"'  "^  appropriation  in  1912      '*  "' 

article  or  for  any  observations  made  about  them.     I  take  f uU  and 
complote  responsibility  for  the  construction  of  the  tables  and  fo? 

3    IT 'p 'T'."'?  '^?1^*"'^  0P'"°°«  expressed.    ( W  S  C  ) 
Wl^  1      ^Pk-  tf 'n^-'^  <^'"'g-'  2d  Sess.,  p.  66.)     H.  E   11019  is  the 
bill  passed  by  the  Democrats  of  the  House  during  th;  first  sess  on 

of  tte  TnrfffT"'','?-"^'''^'  "''''"'  ""'  P"»^  *»  the  pubh-cat  on 
of  the  Tariff  Board's  report.     H.  K.  22195  was  identically  the 

uo4 


Democrats,  Progressives,  and  Republicans  alike  justified  the 
rates  in  their  respective  bills  by  the  facts  and  figures  of  the 
Tariff  Board^s  report.  Naturally,  all  tliis  was  quite  confusing 
to  the  average  citizen,  and  he  asked  repeatedly:  Why  did  not 
the  Tariff  Board  recommend  rates  to  Congress?  And  if  it 
had  undertaken  this  task,  what  rates  would  it  have  recom- 
mended ? 

In  answer  to  these  questions,  in  the  first  place,  it  should  be 
said  that  the  Tariff  Board  was  never  intended  to  be  a  rate- 
making  body.     Its  friends  aspired  to  make  it  a  substitute,  not 
±or  Congress  m  its  legislative  capacity,  but  for  the  Ways  and 
Means  Committee  and  the  Finance   Committee  in  their  ca- 
pacity of  collectors  of  tariff  information.     Under  the  Federal 
Constitution  it  is  practically  certain  that  Congress  could  not 
delegate  legislative  power  to  a  board,  but  it  can  give  power 
to  mvestigate  and  report  findings  of  fact.     In  the  second  place 
these  questions  suggest  a  belief,  common  enough  in  these  days, 
that  there  are  certain  rates  which  once  suggested  would  be 
accepted  by  all  as  obviously  correct.     To  state  this  proposition 
IS  to  answer  it,  for  it  must  be  clear  to  anyone  acquainted  with 
American   tariff  controversies   that   the   abuse   hurled  at   the 
lanff  Board  last  winter  would  be  as  nothing  compared  with 
tlie  abuse  such  action  would  arouse.      The  fact  of  the  matter 
IS  the  Tariff  Board  never  intended  to  go  beyond  reporting 
tacts  and  it  persistently  refused,  under  urgent  political  de- 
mands   to  give  even  an  opinion  of  what  rates  it  considered 
equitable  and  just.      No  one  realized  the  difficulties  of  the 
problem  as  well  as  the  members  of  the  board  themselves  and 
ihey  declined  to  allow  the  zeal  of  those  who  saw  the  limitations 
of  a  tariff  board  less  clearly  than  they,  to  defeat  its  real  use- 
tu  ness      Tariff  making  is  fundamentally  a  question  of  theory 
rather  than  a  question  of  statistics.      There  is  no  set  of  rates 
which  are  obviously  and  absolutely  equitable  and  just,  for  the 
question  which  must  always  be  answered  first  is :    «  Equitable 
and  just  on  what  political  and  economic  theory  9"      Rates 
equitable  and  just  ft-om  ih^  standpoint  of  revenue  might  be 
very  inequitable  and  unjust  from  the  standpoint  of  protection, 
same  bill    introduced  after  the  Tariff  Board 's  report  was  i^uh- 
wit\'  ihetn'atf  ;'"^  ''^^'  ^'"'^  ""^'^^  modified'S^'co^'flrLte 

rgri's:  a'nrirdTtrSeS^^^^^^  ^^  ^''^  ^--^-  «^ 

385 


COMMERCIAL  POLICY 

In  like  manner,  rates  equitable  and  just  from  the  point  of 
view  of  national  exclusiveness  might  be  very  inequitable  and 
unjust  from  the  point  of  view  of  active  foreign  competition. 
It  will  be  profitable  to  examine  further  the  political  and  eco- 
nomic difficulties  in  the  way  of  delegating  the  power  of  mak- 
ing or  recommending  rates  to  a  tariif  board  or  commission. 

No  board  could  suggest  rates  until  it  assumed  the  tariff 
policy  of  some  political  party  to  be  desirable.  Obviously  it  is 
not  within  the  provin<je  of  pure  reason  to  decide  which  is  pre- 
ferable—  a  tariif  for  revenue  only  or  a  protective  tariff. 
Complete  statistics  and  facts  might  be  gathered  on  all  schedules 
of  the  tariff  act  and  still  this  question  would  be  no  nearer 
solution.  Its  answer  is  found  in  the  political  sentiments  of 
the  electorate  and  as  long  as  the  voters  are  the  ultimate  source 
of  power  in  the  United  States  the  answer  must  come  from 
them.  If  the  voters  through  their  Representatives  in  Congress 
were  unanimously  in  favor  of  a  given  tariff  policy  this  obstacle 
to  delegating  ratemaking  power  to  a  board  would  be  removed 
for  the  time  being;  but  it  often  happens,  as  it  did  in  the 
Sixty-second  Congress,  that  different  tariff  theories  prevail  in 
the  majorities  of  the  two  branches  of  Congress.  In  such  a 
case  no  board  could  remain  nonpartisan  that  did  not  attempt 
to  recommend  rates  based  on  both  tariff  theories.  It  is  not 
likely  that  the  two  or  three  great  j)olitical  parties  will  very 
soon  agree  upon  a  common  tariff  progi-am,  and,  until  they  do, 
no  commission  can  take  the  tariff  out  of  politics.  In  the  past, 
the  political  premises  on  which  Congress  has  prepared  tariff 
acts  have  been  determined  at  the  polls  and  it  seems  hardly 
probable  that  the  people  will  ever  relinquish  this  right.  The 
Tariff  Board  as  it  was  constituted  of  course  had  no  power 
even  to  recommend  rates,  but  this  discussion  should  make  it 
clear  that  if  it  had  undertaken  this  task  it  would  have  been 
forced  to  premise  its  conclusions  with  some  political  theory  of 
tariff  making. 

The  political  difficulty  which  stood  in  the  way  of  the  Tariff 
Board's  recommending  rates  having  been  outlined,  there  is  the 
economic  difficulty  to  be  noticed.  If  the  board  had  assumed 
for  the  purpose  of  making  a  set  of  rates  that  a  given  political 
tariff  theory  were  desirable,  it  would  have  been  face  to  face 
with  the  question  of  efficiency.  In  the  Tariff  Board's  report 
on  Schedule  K  there  is  a  vast  amount  of  information  relating 

386 


I 


V 
p 


TARIFF  BOARD  AND  WOOL  LEGISLATION 

to  efficiency  and  economic  conditions  which  no  tariff  maker  can 
disregard;  but  the  use  of  it  removes  the  task  of  rate  making 
from  the  field  of  mathematics  to  that  of  personal  judgment. 
Rate  making  becomes,  then,  no  longer  the  work  of  a  statis- 
tician, but  the  work  of  those  with  authority  to  say  what  the 
policy  of  the  country  is  to  be  regarding  a  particular  industry. 
An  example  may  make  this  point  clear. 

The  woolgi'owing  industry  in  the  United  States  presents  to 
the  legislator  a  very  complex  problem  —  the  problem  of  what 
parts  of  the  industry  should  be  preserved  and  what  parts,  if 
any,  should  be  eliminated  by  foreign  competition.  Three  dis- 
tinct divisions  of  the  woolgrowing  industry  exist  in  the  United 
States:  (1)  The  fine-wooled  merino  sheep,  chiefly  in  Ohio  and 
the  neighboring  States,  which  can  not  exist  unless  at  least  the 
present  tariff  rates  are  maintained;  (2)  the  crossbred  flocks 
which  would  exist  even  under  free  wool;  and  (3)  the  flocks 
of  the  ranch  States  of  the  far  West,  the  amount  of  protection 
required  for  them  being  a  matter  of  debate.  These  facts 
present  a  problem  of  what  is  economically  desirable,  and  the 
conclusions  reached  by  study  of  them  will  depend  primarily 
upon  the  student's  economic  assumptions. 

Those  with  a  leaning  toward  free  trade,  who  approach  and 
study  the  part  of  the  Tariff  Board  report  treating  of  wool- 
growing,  can  with  ease  construct  an  argument  in  favor  of  free 
wool.  This  conclusion  is  reached  by  studying  the  efficiency  of 
woolgrowing  in  the  United  States  as  compared  with  that  in 
Australia  and  England.  Cost  figures  are  not  ignored;  they 
are  accepted  as  the  cost  of  producing  wool  in  the  United  States 
under  the  existing  conditions.  Such  students  advocate  chang- 
ing these  conditions  and  thereby  reducing  the  costs. 

In  pursuing  their  argument  they  consider,  in  the  first  place, 
the  sheep  in  the  Eastern  States.  They  claim  that  the  high 
cost  of  production  of  fine  merino  wool,  as  shown  by  the  Tariff 
Board,  proves,  not  that  high  protection  is  needed,  but  that  it 
is  economically  unprofitable  to  maintain  in  the  United  States 
the  fine-wooled  merino  sheep;  that  the  crossbred  flocks,  which 
produce  wool  at  a  negligible  cost,  are  peculiarly  adapted  to  the 
farming  conditions  of  our  Eastern  States;  and  that  if  the 
tariff  on  wool  were  removed,  the  owners  of  the  fine-wooled 
flocks  would  be  forced  to  cross  their  ewes  with  the  mutton 
breeds,  and  by  this  means  the  woolgrowing  industry  of  the 

387 


COMJMERCIAL  POLICY 

East  would  gradually  become  a  profitable  supplement  to  gen- 
eral farming,  as  it  is  in  Great  Britain,  and  not  a  highly  *" 
specialized  industry,  as  it  is  to-day  in  parts  of  Ohio  and 
Michigan. 

Continuing  their  argument  these  advocates  of  free  wool  turn 
to  the  great  flocks  of  our  western  ranges  and  they  contrast  the 
breeding,  pasturing,  and  management  of  the  flockmasters  of 
Australia,  New  Zealand,  and  Argentina  with  the  conditions  in 
our  West.  They  claim  that  if  the  methods  of  the  former  were 
adopted  in  this  country,  the  costs  of  producing  wool  would  be 
reduced  so  that  our  flockmasters  could  compete  successfully 
with  all  the  world  without  the  tariff.  They  admit  that  free 
wool  would  force  a  readjustment  in  the  West  as  well  as  in  the 
East,  but  they  say  it  would  place  the  industry  on  a  much 
sounder  economic  foundation. 

On  the  contrary,  the  advocates  of  high  protection  can  argue 
from  the  part  of  the  Tariff  Board^s  report  treating  of  wool- 
growing  that  the  rate  on  merino  wool  should  be  even  higher 
than  11  cents  per  pound.  It  is  said  that  very  fine  merino 
wools  are  becoming  more  and  more  scarce  each  year  with  the 
inroads  which  the  mutton  sheep  are  making  upon  the  merino 
flocks  of  the  world;  that  unless  the  source  of  supply  of  these 
wools  is  maintained  certain  phases  of  wool  manufactures  can 
not  continue;  and  that  this  source  of  supply  can  not  be  pre- 
served unless  a  high  level  of  protection  is  maintained.  Very 
plausible  arguments  can  also  be  made  in  favor  of  the  existing 
status  of  the  woolgrowing  industry  because  a  lowering  of  the 
duties  would  inevitably  cause  suffering  both  among  the  sheep 
owners  and  those  employed  in  the  industry. 

The  legislator  who  conscientiously  endeavors  to  consider  im- 
partially the  arguments  of  the  free  trader  and  the  protectionist 
has  hard  questions  to  answer.  Shall  Congress,  for  the  sake 
of  preserving  a  comparatively  small  number  of  fine  merino 
sheep,  burden  the  manufacturer  directly  and  the  consumer  in- 
directly with  a  duty  adequate  to  protect  the  grower  with  the 
highest  costs?  Or  shall  Congress  say  that,  since  the  cost  of 
producing  cross-bred  wool  is  negligible,  it  would  be  better  to 
force  all  woolgrowers  in  the  United  States  to  produce  this  kind 
of  wool  by  having  free  wool,  as  the  United  Kingdom  has  with 
her  31,000,000  sheep  ?  Or  shall  Congress  take  a  middle  course 
and  preserve  such  parts  of  the  industry  as  are  consistent  with 

388 


'I 


TARIFF  BOARD  AND  WOOL  LEGISLATION 

a  moderate  duty?  Any  of  these  questions  might  be  answered 
affirmatively  from  the  report  of  the  Tariff  Board;  but,  what- 
ever may  be  the  correct  attitude  to  assume  toward  this  great 
industry,  all  will  surely  agree  that  no  board,  however  wise, 
should  determine  the  answer  to  the  question.  This  question 
involves  the  problem  of  the  Nation^s  policy  toward  its  indus- 
tries; and,  as  long  as  there  are  political  questions,  the  question 
of  the  preservation  or  destruction  of  industries  will  be,  and 
most  men  would  say  ought  to  be,  one  of  them.  The  subject  is 
discussed  somewhat  at  length  here  in  order  to  show  the  nature 
of  the  efficiency  problem.  It  must  be  clear  that  statistics  are 
of  little  value  in  tariff  making  unless  accompanied  by  sound 
judgment.  "Without  judgment,"  Mr.  Emery  says,*  "statis- 
tics are  useless;  without  statistics,  judgment  is  unreliable." 

Having  pointed  out  what  would  seem  to  be  both  political  and 
economic  obstacles  to  delegating  to  an  executive  board  general 
power  to  recommend  rates,  a  partial  solution  will  be  suggested. 

If  it  be  admitted  that  a  board  be  desirable,  one  of  its  powers 
would,  of  course,  be  the  accumulation  of  information  on  all, 
phases  of  the  tariff  controversy.  On  the  basis  of  this  informa- 
tion Congress,  having  first  laid  down  the  political  and  economic 
premises  on  which  the  board  was  to  proceed,  might  request  it 
to  submit  a  set  of  rates  based  on  the  premises  laid  down.  Such 
questions  as  these  might  be  submitted  to  the  board  for  answer : 
(a)  What  would  be  the  immediate  and  ultimate  effect  of  free 
wool  upon  the  domestic  industry;  upon  the  consumer?  (b) 
What  rate  of  duty  on  raw  sugar  would  eliminate  the  cane- 
growing  industry  of  the  South  and  still  preserve  the  beet- 
sugar  industry?  (c)  Assuming  the  theory  of  tariff  for  reve- 
nue only  to  be  desirable,  what  set  of  rates  on  wool  and  wool 
manufactures  would  most  equitably  raise  $50,000,000  per 
annum?  (d)  Assuming  that  the  tariff  should  equal  the  differ- 
ence in  cost  of  production  between  the  United  States  and  for- 
eign countries  and  that  the  status  quo  of  the  woolgrowing  and 
wool-manufacturing  industries  is  to  remain  substantially  un- 
changed, what  should  the  rates  in  Schedule  K  be?  There 
seems  to  be  no  reason  why  a  board  could  not  give  answers  to 
these  and  similar  hypothetical  questions.  This  plan  would 
leave  to  the  legislative  branch  of  the  Government  not  only  the 

*  H.  C.  Emery,  * ' The  Tariff  Board  and  its  Work.''     Speech  de- 
livered  at  Chicago,  Dec.  3,  1910,  p.  11. 

389 


COMIVIERCIAL  POLICY 

power  of  fixing  the  premises  upon  which  the  board  was  to  pro- 
ceed, but  also  the  privilege  of  finally  accepting  or  rejecting 
the  recommendations  of  the  board;  and  still  it  would  leave  a 
very  useful  field  of  work  for  an  executive  board  or  bureau. 

For  the  purposes  of  this  article  it  is  assumed  that  Congress 
desires  an  answer  to  the  last  of  the  questions  asked  above  and 
that  the  facts  to  be  used  are  those  found  in  the  Tariff  Board's 
report  on  Schedule  K.  This  question  takes  for  granted  two 
facts:  (1)  That  such  protective  duties  should  be  levied  "as 
will  equal  the  difference  between  the  cost  of  production  at 
home  and  abroad,"  and  (2)  that  the  status  quo  of  the  wool- 
growing  and  wool-manufacturing  industries  should  remain 
substantially  unchanged  —  that  is,  the  question  of  efficiency  is 
to  be  practically  disregarded.  Both  of  these  premises  are 
debatable,  and  the  writer,  by  propounding  them,  in  no  way 
commits  himself  either  to  their  support  or  opposition.  Plaus- 
ible arguments  can  be  made  for  or  against  both  propositions. 
It  is  necessary,  however,  before  the  discussion  can  proceed,  to 
assume  some  of  the  varying  factors  in  the  tariff  problem  to  be 
constant,  and  there  are  some  reasons  why  the  premises  chosen 
are  the  most  desirable  in  studying  the  report  of  the  Tariff 
Board. 

The  most  important  reason  is  the  nature  of  the  Tariff  Board. 
The  board  was  a  by-product  of  a  protective  tariff  bill,  the  pet 
of  a  President  committed  to  protection;  and  it  was  requested 
to  apply  the  rule  of  protection  contained  in  the  Republican 
platform  of  1908.  Its  founders  undoubtedly  expected  it  to 
consider  the  protective  system  beyond  controversy.  It  began 
work  with  a  presumption,  therefore,  against  its  nonpartisan 
attitude.  If  it  had  been  composed  of  political  opportunists, 
it  might  easily  have  become  a  mere  tool  of  the  protective  in- 
terests; or  if  it  had  started  out  like  the  so-called  tariff  com- 
mission of  1882  to  hold  hearings,  the  personal  would  have 
overshadowed  the  scientific  element  and  the  board  would  have 
been  little  more  than  a  poor  substitute  ,for  the  Ways  and 
Means  Committee ;  but  the  members  of  the  board^  realized  that 

8  At  the  time  of  the  publication  of  the  report  on  Schedule  K 
the  members  of  the  Tariff  Board  were:  Henry  C.  Emery,  pro- 
fessor at  Yale;  Alvin  H.  Sanders,  editor  of  the  Breeders'  Gazette, 
Chicago;  James  B.  Keynolds,  formerly  Assistant  Secretary  of  the 
Treasury;     William    M.    Howard,    formerly    congressman    from 

390 


TARIFF  BOARD  AND  WOOL  LEGISLATION 


legislators  needed,  not  more  comments  and  figures  compiled  by 
interested  parties,  but  a  careful  scientific  investigation  of  each 
schedule  of  the  tariff,  and  this  they  began  carefully  to  make. 
While  considering  the  cost  of  production  one  of  the  phases  of 
the  problem  deserving  study,  they  did  not  limit  their  study  to 
it,  and  in  the  report  many  other  phases  of  the  question  are 
carefully  considered  which  have  been  obscured  by  the  political 
significance  attached  to  the  cost  of  production.  The  work  of 
the  Tariff  Board,  lamentably  brief  as  it  w^as,  laid  the  founda- 
tion for  a  scientific  investigation  of  the  tariff;  it  broke  the 
grip  on  legislation  which  a  few  interested  parties,  by  their 
knowledge  of  the  tariff  and  by  personal  influence,  had  main- 
tained, and  it  proved  conclusively  that  the  Almighty  did  not 
lodge  all  wisdom  in  the  committee  rooms  of  Congress. 

It  remains  true,  nevertheless,  that  in  the  public  mind  the 
work  of  the  Tariff  Board  and  the  cost-of-production  theory 
of  the  Republican  platform  of  1908  are  inseparable  and  for 
that  reason  this  theory  is  given  prominence  in  this  article. 

A  subject  which  can  only  be  touched  upon  in  this  article  is 
the  relative  value  of  ad  valorem  and  specific  duties.  In  this 
country,  as  a  rule,  the  advocates  of  revenue  tariffs  have  favored 
the  former;  the  advocates  of  protection,  the  latter.  The  Tariff 
Board  made  some  very  pertinent  observations  on  this  subject 
and  stated  that  — 

from  the  point  of  view  of  protecting  the  domestic  manufacturer 
by  equalizing  the  difference  in  cost  of  production  at  home  and 
abroad  by  means  of  tariff  duties,  the  system  of  specific  duties  is 
the  natural  and  logical  method.^ 

It  has  been  said  that  a  flat  specific  rate  bears  unequally  upon 
those  who  buy  wool,  because  it  does  not  adjust  itself  to  a  wide 
range  of  prices.  This  is  true.  But  it  is  equally  true  that  a 
flat  ad  valorem  rate  gives  very  unequal  protection;  30  per 
cent  on  20-cent  wool  is  much  less  protection  than  30  per  cent 
on  40-cent  wool  and  still  it  may  be  that  20-cent  wool  requires 
as  much  protection  as  40-cent  wool.  This  of  course  is  only 
another  case  of  the  necessity  of  determining  your  premises 

Georgia;  and  Thomas  W.  Page,  professor  at  University  of  Vir- 
ginia. 

«  Eeport  of  the  Tariff  Board  on  Schedule  K,  62d  Cong.,  2d  sess. ; 
H   Doc.  No.  342,  p.  709. 

391 


COMMERCIAL  POLICY 


TARIFF  BOARD  AND  WOOL  LEGISLATION 


before  proceeding  to  discuss  tariff  questions.  The  premises 
on  which  this  article  is  written  establish  a  presumption  in 
favor  of  specific  duties.  But  in  order  to  avoid  confusion  this 
question  will  not  be  discussed  in  detail.  Ad  valorem  and 
specific  duties  will  in  most  cases  be  treated  as  though  of  equal 
value. 

Schedule  K  of  the  tariff  act  of  August  5,  1909,  fixes  the  im- 
port duties  upon  a  large  variety  of  wool  products.  In  this 
discussion  the  following  will  be  considered  both  because  they 
are  the  most  important  and  because  the  statistics  of  the  Tariff 
Board  upon  them  are  most  complete :  Raw  wool,  tops,  worsted 
yam,  woolen  and  worsted  fabrics. 

Raw  Wool 

In  ascertaining  the  cost  of  producing  wool  in  the  United 
States  the  Tariff  Board  considered  wool  as  the  chief  product 
of  the  flocks  and  credited  against  the  total  cost  all  receipts  from 
sources  other  than  wool.  In  the  case  of  the  fine-wooled  merino 
flocks,  where  wool  was  the  only  source  of  income,  the  entire 
cost  of  maintaining  the  flocks  was  charged  against  the  wool 
and  as  a  result  the  cost  of  production  was  high.  On  the  con- 
trary, in  the  case  of  the  crossbred  flocks  the  receipts  from 
mutton  were  subtracted  from  the  total  cost  of  maintenance  and 
the  resulting  figure  was  taken  as  the  cost  of  producing  the 
wool.  By  this  means  the  cost  of  producing  wool  was  often 
shown  to  be  negligible. 

Nowhere  in  the  Tariff  Board's  report  do  figures,  considered 
alone,  prove  more  discouraging  than  in  the  volume  on  raw 
wool.  The  cost  of  producing  wool  is  shown  to  range  from 
less  than  nothing  up  to  over  35  cents  per  pound,  and  these 
statis'tics  can  be  studied  intelligently  only  in  the  light  of  the 
facts  with  which  the  Tariff  Board  supplemented  them.  The 
extremely  high  costs  are  given  some  weight  by  the  board  in 
making  up  its  averages.  Its  conclusions  recognize  three  broad 
divisions  of  the  woolgrowing  industry  in  the  United  States. 

In  the  western  region  of  the  United  States,  with  approximately 
35,000,000  sheep,  the  net  charge  against  a  pound  of  wool  is  about 
11  cents.  In  the  other  sections,  with  about  15,000,000  sheep,  the 
net  charge  against  a  pound  of  wool  from  the  merino  sheep,  which 
number  approximately  5,000,000,  is  about  19  cents,  and  the  net 

392 


J 


charge  against  the  wool  grown  on  sheep  of  the  crossbred  type  is 
negligible.7 

The  costs  from  which  the  average  net  charge  of  11  cents 
against  wool  raised  in  the  western  ranges  was  obtained  are 
shown  in  Table  1.® 


Table  1.  —  Net  Charge  Against  Wool  Produced  in  the  Range 

States 


Pounds  of  won  I 

Receipts 

Average  net 

Number 

Percentage 
of  total 

Percentage 
from  wool 

Percentage 

from  other 

sources 

charge 
against 
wool  per 
pound 

2,636,297 
3,836,815 
5,459,088 
4.665,141 
2,293,087 
1,874,287 

12.7 
18.5 
26.3 
22.5 
9.0 
11.0 

47.7 
49.8 
47.4 
42.0 
36.2 
28.9 

52.3 
50.2 
52.6 
58.0 
63.8 
71.1 

$0,237 
.168 
.119 
.077 
.027 

+  .039 

20,764.713 

100.0 

43.0 

57.0 

.109 

The  costs  from  which  the  average  net  charge  of  19  cents 
against  the  fine  merino  wool  raised  in  the  eastern  States  was 
obtained  are  shown  in  Table  2.^ 

Table  2.  —  Net  Charge  Against  Fine  Merino  Wool  Produced 

IN  THE  Eastern  States 


Pounds  of  wool 

Receipts 

Average  net 

Number 

Percentage 
of  total 

Percentage 
from  wool 

Percentage 

from   other 

sources 

charge 

against 

wool  per 

pound 

37,934 
57,083 
90,886 
129,169 
248,519 
29,588 

6 

10 
15 
22 
42 
5 

78 
77 
71 
71 
57 
38 

22 
23 
29 
29 
43 
62 

$0.42 
.32 
.27 
.22 
.12 
.06 

592.979                    100 

64 

36 

.19 

T  Report  of  the  Tariff  Board  on  Schedule  K,  pp.  376-377. 

8  Ihid,,  p.  329. 

9  lUd.,  p.  369. 

393 


COMMERCIAL  POLICY 

The  conclusion  of  the  Tariff  Board  that  the  net  charge 
against  wool  grown  on  crossbred  flocks  in  eastern  United  States 
is  negligible  is  based  on  the  study  of  159,396  pounds  of  wool. 
The  total  receipts  from  the  crossbred  flocks  investigated  were 
$114,099.74,  of  which  33  per  cent  was  from  wool  and  67  per 
cent  from  other  sources.  The  receipts  from  sources  other  than 
wool  a  little  more  than  covered  the  total  cost  of  maintaining 
the  flocks,  which  leaves  the  wool  "velvet";  that  is,  there  was 
no  net  charge  against  it.^ 

There  are,  then,  in  the  United  States  three  distinct  classes 
of  sheep  which  produce  wool  at  widely  varying  costs.  Before 
a  rate  of  protection  can  be  agreed  upon  a  national  average 
cost  must  be  fixed.  It  might  be  suggested  that  if  the  status  quo 
is  to  be  maintained  absolutely  the  rate  of  protection  must  be 
sufficiently  high  to  protect  the  highest  cost.  However  logical 
this  suggestion  may  be,  it  is  not  practical,  and  the  position  of 
the  Tariff  Board  seems  reasonable  on  this  point.  After  giving 
due  weight  to  the  high  and  the  low  costs  in  the  United  States 
it  concluded  that  the  average  net  charge  against  the  wool  clip 
of  the  country  is  about  9^2  cents  per  pound.^*^ 

Turning  now  to  the  cost  of  producing  wool  abroad,  the 
Tariff  Board  summarized  its  findings  by  saying  that  the  aver- 
age net  charge  against  wool  in  South  America  is  "  between  4 
and  5  cents  per  pound"  and  that  "taking  Australasia  as  a 
whole  it  appears  that  a  charge  of  a  very  few  cents  per  pound 
lies  against  the  great  clips  of  that  region  in  the  aggregate."^ ^ 

Without  questioning,  therefore,  the  possibility  of  choosing 
other  costs  equally  entitled  to  consideration,  it  seems  at  least 
fair  to  take  9^2  cents  as  the  net  charge  against  wool  in  the 
United  States  and  3  cents  as  the  net  charge  against  wool  pro- 
duced by  our  greatest  foreign  competitor.  These  are  charges 
per  grease  pound.  Considering  all  grades  of  wool,  the  shrink- 
age of  American  wool  may  be  taken  as  60  per  cent  and  of 
Australian  wool  at  50  per  cent.^^  jf  ^ow  the  much  debated 
recommendation  of  the  board  to  assess  the  duty  on  the  scoured 
content  of  grease  wool  be  accepted,  a  duty  can  be  calculated. 
If  it  costs  in  the  United  States  9.5  cents  to  produce  a  pound 
of  grease  wool  shrinking  60  per  cent,  it  will  cost  23.75  cents 

loiMd.,  p.  377]  ~~  ■ 

11  Ibid.,  p.  11.  , 

12  Ibid.,  pp.  383-385. 

394 


1: 


TARIFF  BOARD  AND  WOOL  LEGISLATION 

to  produce  a  pound  of  clean  wool;  if  it  costs  in  Australia 
3  cents  to  produce  a  pound  of  wool  shrinking  50  per  cent,  it 
will  cost  6  cents  to  produce  a  pound  of  clean  wool.  The  dif- 
ference between  these  two  results  is  17.75  cents,  which  is  the 
difference  in  cost  of  production  per  scoured  pound  of  wool 
between  the  United  States  and  Australia.  If  the  legislator 
desires  to  levy  a  flat  specific  rate,  it  will  require  according  to 
this  calculation  about  an  18-cent  rate  to  protect  the  wool- 
growing  industry  in  this  country  without  forcing  any  serious 
readjustment. 

To  determine  what  ad  valorem  rate  will  give  protection  equal 
to  18  cents  per  scoured  content  pound  is  a  complex  problem, 
for  obviously  the  per  cent  of  protection  fluctuates  with  the 
price.  Table  3  presents  representative  wools  and  the  ad 
valorem  duty  equivalent  to  17.75  cents. 


Table  3.  —  Ad  Valorem  Rate  on  Raw  Wool 


Grade  of  wool 


Port  Philip  scoured 

Sidney  scoured,  good 

South  African,  very  best 

Sidney  scoured,  average 

Australian  crossbred,  superior, 
Australian  crossbred,  average . 


Price  per 

scoured 

pound  in 

1910 


$0,487 
.477 
.507 
.395 
.467 
.294 


Difference 

in  cost  per 

scoured 

pound 


$0.1775 
.1775 
.1775 
.1775 
.1775 
.1775 


Per  cent  of 

protection 

needed 


36.45 
37.21 
35.01 
44.94 
38.01 
60.37 


Here  again  much  depends  upon  judgment,  for  by  choosing 
very  high  or  very  low  prices  widely  divergent  ad  valorem 
rates  can  be  shown  to  be  required.  In  Table  3  reptesentative 
foreign  wools  have  been  chosen,  and  the  conclusion  to  be  drawn 
from  the  table  is  that  35  per  cent,  possibly  40  per  cent,  pro- 
tection is  necessary  to  protect  the  existing  conditions  of  the 
wool-growing  industry. 

The  rates  levied  on  raw  wool  in  the  various  bills  introduced 
into  Congress  in  the  second  session  of  the  Sixty-second  Con- 
gress were: 


395 


COMMERCIAL  POLICY 


TIABIFF  BOARD  AND  WOOL  LEGISLATION 


Cummins  bill 18  cents  per  clean  content  pound  (with  pro- 
viso that  no  rate  should  be  over  45  per 
cent). IS 

Hill  bill 18  cents  per  clean-content  pound.i* 

Penrose  bill 18  cents  per  clean-content  pound.i^ 

Underwood  bill 20  per  cent  ad  vaIorem.i« 

La  Follette  bill 35  per  cent  ad  valorem.is 

Compromise  bill 29  per  cent  ad  valorem.iT 

Tops 

Tops  are  combed  wool  and  consist  of  continuous  strands  of 
wool  in  which  the  fibers  lie  more  or  less  parallel.     They  con- 
stitute a  distinct  product,  and  in  England  and  on  the  Continent 
particularly  they  are  produced  by  a  branch  of  wool  manu- 
facturing as  distinct  as  the  operations  of  spinning  and  weav- 
ing.     The  Tariff  Board  shows  that  the  conversion  costs^^  of 
producing  tops  varies  both  with  the  process  employed  (whether 
French  or  English)  and  with  the  amount  of  output.     A  good 
illustration  of  the  latter  is  given  in  its  report.     The  total  pro- 
duction of  a  combing  mill  for  25  months  of  domestic  half- 
blood  tops  is  divided  into  four  periods.      In  the  first  period 
46.40  per  cent  of  the  total  output  was  produced  at  the  cost  of 
4.91  cents  per  pound;  in  the  second  period  24.19  per  cent  of 
the  total  output  was  produced  at  a  cost  of  6.79  cents  per 
pound;  in  the  third  period  16.81  per  cent  of  the  total  output 
was  produced  at  a  cost  of  7.75  cents  per  pound;  and  in  the 
fourth  period  12.60  per  cent  of  the  total  output  was  produced 
at  a  cost  of  10.05  cents  per  pound.^® 

"  Top  making  "  is  a  more  comprehensive  term  than  "  comb- 
ing." The  cost-of-production  figures  given  by  the  board  are 
for  combing  and  do  not  include  such  costs  as  storage,  losses 
from  off  sorts,  etc.,  which  a  manufacturer  making  tops  alone 
must  take  account  of.  The  board  does  not  state  to  what  ex- 
tent the  cost  of  top  making  exceeds  the  cost  of  combing,  so 

18  Amendment  to  H.  E.  22195,  proposed  July  24,  1912. 

1*  H.  R.  22262,  proposed  Mar.  22,  1912. 

15  Amendment  to  H.  R.  22195,  proposed  July  27,  1912. 

i«H.  R.  22195,  proposed  Mar.  21,  1912. 

IT  H.  Rept.  No.  1130,  Aug.  2,  1912. 

18  By  conversion  cost  is  meant  the  cost  of  converting  the  raw 
material  into  the  finished  product.  It  does  not  include  the  cost 
of  materials. 

i»  Report  of  the  Tariff  Board  on  Schedule  K,  p.  642. 

396 


that  the  opinion  of  the  trade  must  be  resorted  to.  It  seems 
to  be  recognized  that  the  cost  of  top  making  is  50  per  cent 
greater  than  of  combing  and  this  percentage  has  been  used  in 
determining  the  costs  in  this  article. 

For  the  purpose  of  this  discussion  the  costs  of  combing  with 
English  combs  has  been  adopted  and  allowance  has  been  made 
for  the  fluctuations  in  costs  due  to  fluctuations  in  output. 
Table  4  presents  the  costs  of  the  Tariff  Board^^  which  seem 
most  nearly  to  represent  the  board's  conclusions. 

Table  4.  —  The  Conversion  Cost  op  Combing  and  Top  Making 
Per  Pound  in  the  United  States 


Quality  of  top 

Conversion 

cost  of 

combing 

Conversion 

cost  of  top 

making 

(combing 

plus  60  per 

cent) 

Unwashed  territory,  one-half  blood  or  above 

Australian  and  domestic,  one-half  blood  and  above.. . 

TTniiroali<vl  tArrif  nrv    thrpf-flEhths  blOod 

$0.0760 
.0679 
.0619 
.0610 
.0562 
.0448 

$0.1140 
.1018 
.0928 

.0915 

Australian  or  domestic  high,  one-quarter  blood 

Quarter  blood 

.0843 
.0672 

The  Tariff  Board  gave  no  elaborate  statistics  on  the  cost 
of  combing  and  top  making  abroad.  But  it  felt  able,  upon 
the  basis  of  its  information,  to  state  the  relative  positions  of 
the  industry  in  this  country  and  in  England.  "  In  view  of  the 
facts  related,"  it  says  in  conclusion,  "  it  seems  a  fair  statement 
that  the  cost  of  making  tops  in  the  United  States  is  about 
80  per  cent  greater  than  abroad."2o  For  a  given  product  in 
England,  therefore,  with  a  cost  of  100  units  there  would  be 
in  the  United  States  a  cost  of  180  units. 

The  foregoing  conclusions  are  adhered  to  in  subsequent  cal- 
culation on  the  costs  of  producing  tops.  In  Table  5  the  effect 
of  the  top  duties  in  the  La  Follette,  Underwood,  and  Com- 
promise bills  are  compared  with  the  Tariff  Board  costs.  The 
conclusions  of  the  table,  it  should  be  noted,  consider  only  the 
differences  in  conversion  costs. 

In  constructing  this  table  English  prices  were  taken  for 
standard  qualities  of  tops.     The  total  English  cost  (column  2) 


20  lUd.,  pp.  644-645. 


397 


COMMERCIAL  POLICY 


Table    5  —The    Net    Protection    Gi\t:n    to    Tops    bt    the 
La  Follette,  Underwood,  and  Compromise  Bills  Com- 
pared WITH  THE  Findings  of  the  Tariff  Board 


Quality 
of  tops 


English 

price 

(1911) 


English 
total 
cost 


32s. 

363. 
403. 
5Q3. 
&ls. 
80s. 


English 
top- 
making 
conver- 
sion 
cost 


$0,261 
.209 
.274 
.360 
.533 
.593 


$0.2486 
.2502 
.2610 
.3429 
.5076 
.5648 


$0.0374 
.0468 
.0509 
.0516 
.0566 
.0533 


Cost  of 
wool  in 

1  pound 
of  top 


Compensatory  Duty 


La  Fol- 
lette 
bill 
(35  per 
cent)  I 
5 


Under- 
wood 
bill 

(20  per 
cent)* 

6 


t    Com- 
promise 

bill 

(29  per 

cent)  * 

I       7 


$0.2112 

.2004 
.2101 
.2913 
.4510 
.5015 


$0.0739 
.0733 
.0735 
.1020 
.1579 
.1755 


$0.0422 
.0419 
.0420 
.0583 
.0902 
.1003 


$0.0612 
.0007 
.0609 
.0845 
.1308 
.1454 


Quality  of  tops 


Protection  under 


32s. 
36s. 
403. 
60s. 
643. 
80s. 


La  Follette 

bill  (40  per 

cent)' 

8 


Underwood 
bill  (25  per 
cent)' 

9 


Compromise 

bill  (32  per 

cent)' 

10 


$0.0305 
.0343 
.0361 
.0420 
.0553 
.0617 


$0.0231 
.0254 
.0265 
.0317 
.0431 
.0180 


$0.0223 
.0254 
.0268 
.0307 
.0398 
.0444 


Protection 

needed 
according  to 
Tariff  Board 

11 


$0.02992 
.03744 
.04072 
.04128 
.04528 
.05034 


1  Total  duty  on  raw  wool. 
«  Total  duty  on  tops. 

was  computed  by  subtracting  from  the  price  an  assumed  dis- 
tribution expense  and  profit  of  5  per  cent.     An  objection  wiU 
}>e  made  to  this  method  on  the  ground  that  it  is     unscientific, 
but  for  the  purpose  of  this  discussion  it  is  likely  to  be  more 
accurate  than  the  computation  of  the  total  English  cost  from 
the  prices  of  raw  wool.     The  English  top-making  conversion 
costs  are  computed  from  the  statistics  of  the  Tariff  Board, 
and  by  subtracting  them  from  the  total  English  cost  the  cost 
of  the  wool  in  1  pound  of  top  is  determined.     The  compensa- 
tory duty  in  cents  under  each  of  the  bills  is  computed  by 
multiplying  the  figures  in  column  4  by  the  ad  valorem  rat€ 
imposed  by  the  respective  bills  upon  raw  wool.     The  English 
price  is  then  multiplied  by  the  ad  valorem  rate  fixed  by  each 
bill  on  tops,  and  from  the  result  is  subtracted  the  correspond- 

398 


r 


1 


, 


TARIFF  BOARD  AND  WOOL  LEGISLATION 

ing  compensatory  duties.  This  gives  the  net  amount  of  pro- 
tectioi  under  each  bill  and  is  to  be  compared  ^v^th  the  d  ffer- 
ence  ia  conversion  costs  between  this  country  and  England, 
as  determined  by  the  Tariff  Board  (column  11). 

If  tie  prices  used  in  Table  5  had  been  for  a  low-pnce  year, 
the  net  protection  given  by  each  of  the  bills  would  havQ  been 
less  thm  sho^^m.  This  is,  from  the  point  of  view  of  protection, 
one  of  the  unavoidable  disadvantages  of  ad  valorem  duties.  A 
given  ad  valorem  rate  may  be  protective  when  prices  are  at 
one  leTcl  and  not  protective  when  they  are  at  another 

In  tie  La  Follette,  Underwood,  and  Compromise  bills,  where 
the  duLy  on  tops  was  a  flat  ad  valorem,  rate,  it  was  possible  to 
compute  the  net  protection  separately  from  the  compensatory 
duty  In  studying  the  Penrose  and  Hill  bills,  where  the  duty 
on  the  tops  was  a  specific  and  a  compound  duty,  respectively, 
a  different  method  must  be  followed.  Table  6  is  a  comparison 
of  the  total  protection  and  compensation  given  on  tops  by  the 
Penrose  and  Hill  bills  with  the  total  protection  and  compensa- 
tion required  according  to  the  Tariff  Board. 

Table  6  —  The  Duties  on  Tops  in  the  Penrose  and  Hill  Bills 
*       Compared  with  the  Tariff  Board  Costs     


Quality 
of  tops 


32s. 
36s, 
403 
50s 
648 
803 


Price  in 

England 

(1911) 


Per  pound 
$0,261 
.269 
.274 
.360 
.533 
.593 


Duty 

under 

Penrose 

bill 


Duty 

under 

Hill  bill 


Protec- 
tion and 
compen- 
sation 
needed 
per  Tariff 
Board  ^ 


Duty 

under 

Penrose 

bill 


Duty 

under 

Hill  bill 


Per  pound 
$0.28 
.28 
.28 
.28 
.28 
.28 


Per  pound 
$0.2131 
.2135 
.2137 
.2180 
.2267 
.2298 


Per  pound 
$0.2449 
.2524 
.2557 
.2563 
.2603 
.2656 


Per  cent 

107.28 

104.09 

102.19 

77.78 

52.53 

47.22 


Per  cent 
81.65 
79.37 
77.99 
60.56 
42.53 
38.75 


Protec- 
tion and 
compen- 
sation 
needed 


Per  cent 
93.83 
93.83 
93.32 
71.19 
48.83 
44.79 


1  $0,215  plus  difference  in  conversion  cost. 

The  Penrose  bill  levies  a  flat  specific  rate  of  28  cents  on 
tops,  and  the  rate  under  the  Hill  bill  is  20  cents  per  pound 
and  5  per  cent  ad  valorem.  From  these  rates  the  duty  m  cents 
per  pound  is  arrived  at.  In  computing  the  total  protection 
and  compensation  required  according  to  the  Tariff  Board,  1» 
cents  is  adopted  as  the  duty  on  the  clean  content  of  wool,  and, 

399 


Iri 


\ 


COMMERCIAL  POLICY 


TARIFF  BOARD  AND  WOOL  LEGISLATION 


making  allowance  for  waste,  21^,4  cents  was  taken  as  a  fair 
compensatory  duty;  that  is,  the  duty  which  must  be  assessed 
in  order  simply  to  compensate  the  domestic  top  maler  for 
the  rise  in  the  price  of  his  raw  material  due  to  the  18-cent 
duty  on  raw  wool.  To  this  compensatory  duty  was  adied  the 
diHerence  in  conversion  cost  between  here  and  abroad  as  set 
forth  in  column  11  of  Table  5.  The  last  three  colimns  in 
Table  6  are  the  preceding  three  expressed  in  percentages. 

One  of  the  noticeable  features  of  the  percentages  in  Table  6 
is  the  fact  that  the  tops  of  low  quality  receive  or  require  a 
larger  duty  than  the  tops  of  a  higher  quality.  Such  a  difficulty 
arises  inevitably  from  a  flat  specific  compensatory  duty.  In 
theory,  if  the  rate  of  duty  on  raw  wool  is  the  same  on  all 
grades  of  wool,  the  compensatory  duty  on  the  manufactured 
product  should  be  the  same  on  all  qualities.  In  practice,  how- 
ever, a  flat  specific  compensatory  duty  bears  more  heavily  on 
the  lower  than  on  the  higher  qualities  of  product,  and  it  re- 
sults in  a  higher  ad  valorem  equivalent  on  the  lower  qualities. 
Apparently,  the  practical  thing  to  do  is  to  grade  the  com- 
pensatory duties  in  order  to  retain,  from  the  point  of  view  of 
protection,  the  advantages  of  specific  duties  and  still  eliminate 
the  excessive  duties  on  the  lower  qualities. 

On  the  basis  of  the  premises  of  this  article,  then,  what  is  a 
fair  rate  on  tops  ?  Table  5  shows  that  40  per  cent  ad  valorem 
is  adequate,  in  most  cases,  if  the  duty  on  raw  wool  is  35  per 
cent  ad  valorem,  but  a  somewhat  higher  rate  is  defensible,  as 
will  be  observed  from  Table  6.  A  decline  in  price  would,  of 
course,  make  the  calculations  of  this  table  useless.  From  the 
standpoint  of  protection,  if  the  duty  on  raw  wool  is  specific, 
the  duty  on  tops  should  also  be  specific.  The  conversion  cost 
of  tops  is,  as  compared  with  the  material  cost,  relatively  small 
and  their  price  is  affected  directly  by  the  price  of  raw  wool. 
For  the  protectionist  the  most  desirable  method  for  levying 
the  duty  on  tops  would  seem  to  be  a  carefully  graded  specific 
duty.  If  this  be  conceded  and  if  the  duty  on  raw  wool  be 
18  cents  on  the  clean  pound,  a  duty  of  26  or  27  cents  per 
pound  of  tops  of  60s  quality,  graded  both  up  and  down,  would 
undoubtedly  be  a  fair  duty  —  granted,  of  course,  the  premises 
on  which  the  calculations  have  been  made. 


400 


\  Worsted  Yakns 

Tie  conversion  costs  of  converting  tops  into  worsted  yarns 
in  tie  United  States,  as  found  in  the  report  of  the  Tariff 
Boaid,  are  summarized  in  Table  7. 

Table  7.  —  Conversion  Cost  Per  Pound  op  Producing  Worsted 
Yarns  from  Tops  in  the  United  States  21 


Ply  and  Count 
of  Yam 

2/28 
2/32 
2/36 
2/38 
2/40 
2/42 
2/44 
2/46 
2/48 
2/60 


Conversion  Cost 
per  Pound 
$0.1262 
0.1448 
0.1648 
0.1749 
0.1798 
0.1847 
0.2055 
0.2267 
0.2335 
0.3181 


After  discussing  the  American  costs  and  comparing  them 
with  English  costs,  the  Tariff  Board  sums  up  the  relative  com- 
petitive positions  of  the  two  countries  in  the  following  words : 

In  view  of  the  fact  that  the  figures  as  given  for  the  United 
States  have  been  put  at  what  may  be  considered  a  low  figure  when 
compared  with  the  large  number  of.  mills  from  which  figures  were 
received,  it  may  be  said  that,  making  due  allowance  for  variations 
on  account  of  quality,  etc.,  the  actual  manufacturing  cost  in  the 
United  States  for  turning  tops  into  yarn  is  about  twice  what  it 
is  in  England.22 

The  conversion  cost  of  converting  tops  into  yarns  in  Eng- 
land, then,  may  be  taken  as  substantially  one-half  the  costs 
presented  in  Table  7. 

The  costs  here  discussed  include  those  of  drawing,  spinning, 
twisting,  and  spooling,  and  do  not  include  those  of  sorting, 
carding,  and  combing,  which  were  considered  under  the  cost 
of  making  tops.  It  is  necessary,  therefore,  in  order  to  de- 
termine the  cost  of  converting  raw  wool  into  worsted  yarns,  to 
add  to  the  costs  of  converting  tops  into  yarn  the  costs  of 
combing.  This  has  been  done  in  making  the  subsequent  tables 
on  yarns.  To  one  who  analyzes  carefully  the  figures  of  these 
tables  it  will  be  evident  that  the  cost  of  combing  alone,  not 


zilhid.y  p.  649. 
22jbid.,  p.  650. 


/ 


401 


'!    P 


COMMERCIAL  POLICY 

the  cost  of  top  making,  has  been  added  to  the  cost  of  convert- 
ing tops  into  yarn ;  that  is,  the  50  per  cent  added  to  the  cost 
of  combing  in  computing  the  cost  of  top  making  is  not  here 
added  in  computing  the  total  conversion  cost  of  yam.  The 
reason  for  this  is  the  fact  that  some  of  the  costs  incidental 
to  a  combing  establishment  are  absent  where  combing  is  msrely 
one  department  of  a  spinning  mill. 

In  Table  8  the  net  protection  on  worsted  yams  given  hj  the 
La  Follette,  Underwood,  and  Compromise  bills  is  computed  and 
compared  with  the  findings  of  the  Tariff  Board. 

TABLt  8.  —  The  Net  Protection  Given  to  Worsted  Yarns  by 

THE  La  Follette,  Underwood,  and  Compromise  Bills 

AND  Compared  with  the  Findings  of  the 

Tariff  Board 


Count  of  yarn 


2/32S 
2/363 

2/403 
2/483 
2/609 
2/808 


Price  of 

yarn  in 

England 

(July  27, 

1911) 


Total 

cost  of 

yarn 


$0.4157 
.4714 
.5120 
.7097 
.8111 
1.1761 


$0.3695 
.4191 
.4511 
.6308 
.7210 
1.0454 


4 

5 

Conver- 

sion cost 

Cost  of 

in  Eng- 

wool in 

land  from 

1  pound 

wool 

of  yarn 

to  yarn 

$0.0973 

$0.2722 

.1136 

.30.55 

.1238 

.3313 

.1512 

.4796 

.1968 

.5242 

.2724 

.7730 

6 

La  Follette 
bill:  Com- 
pensatory 
duty 

(35  per 

cent)i 


$0.0953 
.1069 
.1160 
.1679 
.1835 
.2706 


1 

7 

8 

9 

10 

11 

12 

Under- 

Com- 

Protection 

Protection 

Protection 

wood  bill: 

promise 

given  by 

given  by 

given  by 

Protection 

Count  of 

Com- 

bilhConi- 

La 

Under- 

Com- 

needed 

pensatory 

jicnsatory 

Follette 

wood 

promise 

according 

yam 

duty 

duty 

bill 

bill 

bill 

to  Tariff 

(20  per 

(29  per 

(45  per 

(30  per 

cenlj* 

(35  per 

Board 

cent)i 

cent)i 

cent)* 

cent)* 

2/32s.... 

$0.0544 

$0.0789 

$0.0918 

$0.0703 

$0.0666 

$0.0923 

2/36a.... 

.0611 

.0886 

.1052 

.0803 

.0764 

.1074 

2/40S.... 

.0663 

.0961 

.1144 

.0873 

.0831 

.1170 

2/48S. . . . 

.0959 

.1391 

.1515 

.1170 

.1093 

.1443 

2/60S. . . . 

.1048 

.1520 

.1815 

.  1385 

.1319 

.1893 

2/808. . . . 

.  l.">46 

.2242 

.2586 

.1982 

.1874 

.2620 

*  Total  duty  on  raw  wool. 


*  To  tal  duty  ou  yarn. 


In  Table  8  the  total  cost  of  the  yarn  is  computed  in  sub- 
stantially the  same  way  as  it  was  computed  in  the  case  of 

402 


/ 


TARIFF  BOARD  AND  WOOL  LEGISLATION 

tops  (Table  5);  that  is,  an  allowance  of  121/2  per  cent  to 
co«r  distribut  on  expenses  and  profit  was  taken  from  the 
pil  '  From  the  total  cost  was  subtracted  the  English  con- 
vem;n  cost  in  order  to  determine  the  cost  of  wool  m  1  pound 
of  yarn  (column  5) .  Column  5  is  then  multiplied  by  the  rates 
on^aw  wool  in  the  respective  bills  in  order  to  determine  the 
amount  of  yarn  duty  needed  for  compensation.  Colmnns  9, 
ITZl  11  are  the  rates  on  yarn  in  the  respective  bills  times 
th;  price  and  less  the  compensatory  duty.  The  result  gives  the 
let  protection  furnished  by  each  bill  and  should  be  compar  d 
with  the  protection  needed  according  to  the  findings  of  the 

Tariff  Board  (column  12).  ..  „  *„  ti,„  Tariff 

The  protection  on  yarns  needed  accordmg  to  the  Taritt 
Board  in  Table  8  is  a  minimum.  The  net  proteet.on  given  by 
even  the  La  Follette  bill  falls  in  most  cases  slightly  under  the 
protection  required.  It  may  be  fairly  said  tb^*  45  per  cent 
on  the  basis  of  35  per  cent  on  raw  wool  is  not,  accordmjT  to 
he  Tariff  Board.  Lfflcient  protection.  The  f act  f  °ula  ^ 
noted,  also,  that  a  decline  in  the  price  of  yarns  would,  under 
ad  valorem  duties,  reduce  the  net  protection  given. 

Table  9  presents  the  total  protection  and  compensation  given 

T^.„.„  o       Tnr  Total  Duties  on  -Woksted  Taens  ckder  the 

^''pENe7sE  AND  HILL  BILLS  COMPAEEI,  WITH  THE  FlNMNGS 

OP  the  Tariff  Board 


Count 
of  yarn 


Price  of 
yarn  in 
England 
July  27, 
1911 


Duty 

under 

Penrose 

bill 


2/323. 

2/36S. 
2/40S. 

2/4SS. 
2/603. 
2/803. 


$0.4157 
.4714 
.5120 
.7097 
.8111 
1.1761 


Duty 

under 

Hill  bill 


Per  pound 
$0,390 
.400 
.410 
.442 
.490 
.570 


$0.2774 
.2857 
.3174 
.3569 
.4178 
.5090 


Protec- 
tion and 

com- 
pensation 
needed 
according 
to  Tariff 

Board 
on  basis 
of  18-cent 

wooH 


Duty 

under 

Penrose 

bUl 


Duty 

under 

Hill  bill 


Per  pound  Per  pound 


$0.3223 
.3374 
.3470 
.3743 
.4193 
.4920 


93.82 
84.85 
80.08 
62.28 
60.41 
48.47 


Per  cent    Per  cent    Per  cent^ 


66.73 
60.61 
61.99 
50.29 
51.51 
43.28 


Protec- 
tion and 

compen- 
sation 

needed 

accord- 
ing to 
Tariff 
Board 


77.53 
71.57 
67.77 
52.74 
51.70 
41.83 


»  $0.23  plus  difference  conversion  cost. 


403 


■I 


fii 


COMMERCIAL  POLICY 

by  the  Penrose  and  Hill  bills  on  yarns  and  the  amount  re- 
quired according  to  the  findings  of  the  Tariff  Board. 
^    The  yarn  duty  in  the  Penrose  bill,  as  shown  in  colunn  2, 
IS  a  graded  specific  duty  —  graded  according  to  the  couat  of 
the  yam.     The  duty  in  the  HiU  bill  is  a  compound  duty,  and 
the  computations  for  the  yarns  in  the  table  are  sho\Tn  in 
column  3.      Column  4  shows  the  protection  and  compensa- 
tion,  m  cents,  required  according  to  the  Tariff  Board  and  is 
made  up  of  a  compensatory  duty  of  23  cents  per  pound,  and 
the  difference  m  conversion  costs  for  yarns  as  found  in  column 
12  of  Table  8.     It  will  be  noticed  that  this  compensatory  duty 
is  higher  than  the  one  recommended  by  the  board  when  the 
duty  on  raw  wool  is  18  cents.23      This  is  a  concession  to  the 
critics  of  the  board  who  said  that  the  compensatory  duty  should 
be  based,  not  on  the  scoured  content  of  grease  wool,  but  on  the 
duty  on  scoured  wool  which  in  a  bill  with  a  duty  of  18  cents 
on  the  scoured  content  of  grease  wool  would  be  at  least  19 
cents.   ^  In  this  article,  therefore,  the  benefit  of  the  doubt  on 
this  point  has  been  resolved  in  favor  of  the  manufacturer,  and 
the  compensatory  duty  has  been  based  on  the  recommendations 
of  the  board  for  a  raw  wool  duty  of  19  cents.^s     Columns  5,  6, 
and  7  are  columns  2,  3,  and  4  expressed  in  percentages.     Here 
It  IS  found,  as  in  considering  the  top  duties  of  these  bills,  that 
the  duties  are  much  heavier  on  the  low-gi-ade  yarns  than  on 
the  higher.     This  defect  can  be  corrected  by  properly  grading 
the  specific  part  of  the  duties. 

Considering  all  the  bills  studied,  the  method  of  levying  the 
duties  on  yarns  in  the  Penrose  bill  is  the  most  desirable  from 
the  point  of  view  of  protection. 

Yams  — 

The  Tariff  Board  says  — 

are  comparatively  well  standardized  and  their  cost  varies  in  a 
certain  regular  relation  to  the  fineness  or  count  of  the  yarn  It 
IS  a  simple  matter,  then,  to  adopt  the  specific  system  in*  this 
particular  case.  A  duty  can  be  assessed  on  No.  1  yarn  and  be 
made  to  increase  by  a  certain  proportion  with  each  additional 
count  of  yam.24 


23  Ihid.,  p.  626. 
2^  Ibid.,  p.  710. 


404 


TARIFF  BOARD  AND  WOOL  LEGISLATION 

These  suggestions  were  followed  by  the  f ramers  of  the  Pen* 
rose  bill.  By  referring  to  Table  9  it  will  be  observed  that  a 
rate  of  41  or  42  cents  per  pound  on  2/60s  is  approximately  in 
accord  with  the  findings  of  the  Tariff  Board.  This  rate  should 
be  graded  up  and  down,  according  to  the  count  of  the  yam. 

An  ad  valorem  rate  on  yarns  is,  from  a  protective  point  of 
view,  inadvisable,  but  if  it  is  adopted  the  rate  should  be  at 
least  50  per  cent  on  the  basis  of  35  per  cent  wool.  It  was 
evident  from  Table  8  that  the  45  per  cent  given  by  the  La 
FoUette  bill  was  scarcely  ample  to  cover  the  minimum  differ- 
ence in  conversion  cost. 

Woolen  and  Worsted  Fabrics 
When  the  question  of  the  duty  on  woolen  and  worsted 
fabrics  is  taken  up,  a  field  is  entered  upon  vastly  more  com- 
plicated than  that  of  tops  and  yarns.  In  investigating  the 
cost  of  weaving  the  Tariff  Board  chose  55  samples  of  woolen 
and  worsted  fabrics,  which  included  samples  of  all  the  standard 
varieties  used  for  men's  and  women's  wear.  ^  The  board,  in 
the  first  place,  obtained  the  actual  weaving  cost  of  each 
fabric  from  the  mill  originally  making  it;  in  the  next  place, 
it  submitted  the  various  samples  to  foreign  and  domestic  manu- 
facturers making  similar  goods,  and  obtained  from  them,  after 
their  books  had  been  studied  by  the  board's  agents,  the  cost  at 
which  they  could  make  the  fabrics.  The  figures  were  checked 
and  compared  and  the  record  of  each  sample  written  up.^^ 
The  board  contented  itself  with  giving  the  costs  of  converting 
yam  into  cloth,  and  it  made  no  effort  to  report  specifically 
on  the  conversion  costs  of  the  tops  and  yarns  used  in  the  mak- 
ing of  the  fabrics.  Nor  did  it  attempt  to  connect  its  investi- 
gation of  weaving  costs  with  its  costs  of  combing  and  spinning. 
An  effort  will  here  be  made  to  do  this.  In  Table  10  the  differ- 
ence in  conversion  costs  between  this  country  and  abroad  for 
the  samples  reported  on  by  the  Tariff  Board  is  calculated 
from  the  raw  wool  through  combing  and  spinning  to  the  fin- 
ished fabrics.  Those  samples  on  which  no  English  costs  were 
obtained  are  not  included.  In  this  table  the  classification  of 
the  Hill  bill  has  been  adopted,  not  necessarily  because  it  is  the 
last  word  on  classification,  but  because  it  was  the  one  most  dis- 
cussed in  the  sixty-fifth  Congress. 


28  2ftid.,  pp.  651-690. 


405 


COMMERCIAL  POLICY 


TARIFF  BOARD  AND  WOOL  LEGISLATION 


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408 


The  unit  of  measure  in  Table  10  is  1  pound  of  cloth.  Before 
the  difference  in  conversion  costs  of  the  tops  and  yarn  entering 
into  a  pound  of  cloth  could  be  computed  it  was  necessary  to 
determine  how  much  waste  there  is  in  combing  and  spuming. 
It  should  be  clear  that,  because  of  the  wastes  in  these  processes, 
it  requires  more  than  a  pound  of  yarn  to  make  a  pound  ot 
cloth  and  more  than  a  pound  of  top  to  make  a  pound  ot 
worsted  yarn.  The  conversion  cost  of  the  material  wasted, 
however,  must  be  considered  in  calculating  the  total  conversion 
cost  of  a  fabric.  At  best  the  method  by  which  the  figures 
in  Table  10  were  computed  is  complex.  The  best  way  to 
make  it  clear  is  to  take  one  sample  and  follow  it  through  all 

the  computations. 

Sample  No.  22  is  a  men's  blue  serge  weighing  14  ounces  to 
the  yard.  In  making  the  yarn  required  to  make  1  pound  of 
this  fabric  approximately  1.24  pounds  of  top  were  consumed. 
The  difference  in  the  conversion  costs  between  this  country  and 
England  of  the  top  in  this  fabric  is  3.5  cents  per  pound,  and 
the  corresponding  cost  for  1.24  pounds  is  4.34  cents.  By  this 
means  all  the  figures  in  column  2  were  computed. 

In  making  1  pound  of  sample  No.  22  approximately  1.13 
pounds  of  worsted  yarns  were  used  —  0.60  of  a  pound  ^re 
used  in  the  warp  and  0.53  of  a  pound  were  used  in  filling; 
2/24s  were  used  in  the  warp.     According  to  the  Tariff  Board 
the  difference  in   conversion  cost  between  this  country  and 
England  of  2/24s  is  6.31  cents  per  pound,  and  the  correspond- 
ing figure  for  0.60  of  a  pound  would  be  3.79  cents;  l/12s  were 
used  hi  the  filling.     While  no  cost  was  given  for  l/12s  by  the 
Tariff  Board,  a  fair  estimate  on  the  basis  of  the  costs  given 
would  make  the  difference  in  conversion  costs  between  this 
country  and  abroad  for  1  pound  of  this  yarn  5.04  cents,  and  the 
corresponding  cost  for  0.53  of  a  pound  would  be  2.67  cents. 
Adding  3.79  cents  and  2.67  cents  the  result  is  6.46  cents  — 
the  difference  in  conversion  costs  between  this  country  and 
abroad  of  making  the  yarn  in  1  pound  of  sample  No.  22      This 
method  of  calculating  the  yarn  costs  was  followed  m  the  case 
of  each  sample,  and  the  results  are  to  be  found  in  column  3. 

The  American  weaving  cost  for  sample  No.  22  was  22.2  cents 
per  yard   and   the  English   weaving   cost  was   11.93   cents^^^ 


26  lUd.,  p.  665. 


409 


COMMERCIAL  POLICY 


ii 


per  yard.  The  latter  cost  was  subtracted  from  the  former  in 
order  to  obtain  the  difference  in  the  weaving  conversion  costs 
per  yard  between  this  country  and  abroad.  This  difference 
per  yard  was  then  reduced  to  the  corresponding  difference  per 
pound,  or  11.7  cents.  In  this  manner  each  of  the  costs  in 
column  4  of  Table  10  was  computed. 

Column  5  is  the  sum  of  columns  2,  3,  and  4  and  shows  the 
total  difference  in  cents  per  pound  between  this  country  and 
England  of  converting  wool  through  all  the  processes  into 
finished  cloth.     For  sample  No.  22  this  cost  is  22.5  cents. 

It  next  became  necessary  to  determine  the  price  on  which 
the  duty  would  be  assessed  if  the  fabric  in  question  were  im- 
ported. Under  the  present  administration  of  the  customs 
this  price  would,  of  course,  be  the  foreign  price.  The  Tariff 
Board  did  not  give  prices  for  the  samples  under  discussion 
but  it  did  give  the  total  costs.  Upon  the  basis  of  the  total 
cost  the  price  is  computed.  Recurring  to  sample  No.  22,  the 
total  English  cost,  i.  e.,  both  material  and  conversion  costs,  for 
this  sample  was  49.11  cents  per  yard.-^  This  total  cost  per 
yard  was  reduced  to  the  total  cost  per  pound,  and  to  it  was 
added  llYz  per  cent  of  itself  in  order  to  determine  a  figure  on 
which  the  duty  should  be  assessed.  This  method  is  employed 
by  the  customs  officials  ^hen  goods  are  billed  to  this  country 
at  cost,  and  17^^  per  cent  is  a  fair  allowance  for  distribution 
expenses  and  profit.  For  sample  No.  22  the  figure  on  which 
the  duty  would  be  assessed  is  65.94  cents  per  pound.  This  is 
the  way  column  6  was  made  up. 

Column  7  is  the  real  object  of  all  the  computations  in  Table 
10.  It  is  the  per  cent  which  column  5  is  of  column  6;  in 
other  words,  it  is  the  total  difference  in  conversion  costs  be- 
tween this  country  and  England  expressed  in  percentage.  If, 
then,  a  duty  were  being  levied  just  adequate  to  offset  the  dis- 
advantages of  the  American  manufacturer  arising  from  the 
difference  in  conversion  costs  alone  between  here  and  England 
of  sample  No.  22,  the  ad  valorem  rate  would  be  34.12  per  cent. 
This  duty,  of  course,  does  not  provide  for  compensation  on 
account  of  a  duty  on  raw  wool. 

There  are  certain  other  observations  to  be  made  concerning 
the  method  by  which  Table  10  was  constructed.  No  effort  was 
made  to  work  out  the  top  costs  in  column  2  according  to  the 


2«  Ihid,  p.  665. 


410 


TARIFF  BOARD  AND  WOOL  LEGISLATION 

These  costs  corres^^^^^^^^  ^ChTaSon:  Ifoc^^rt  column 

frr       irtr-in  S:  amount  of  top  used  in  makin. 
Z  are  aue  lu  v  Whenever  the  spaces  are  blank  in 

f  =  4?^  rs*s™ -rrt?  sss. 

Tht  was  t^e  in  proportiouing  the  material  in  a  pound  of 
mating  the  amount  ot  loss  oi  m  ^^^^ 

Schedule  K  and  in  those  cases  where  costs  were  not  given  for 
SrtSar  counts  the  costs  of  these  were  estimated  on  the 
Twfhp  costs  given.     The  costs  of  cotton  yams  (when  a 

ihese  ^®^^^^;\^    .      .      ith  the  reader.     Differences  of 

ment  of  him  who  reads. . ^ — 

■■  2T  H.  Doc.  No.  643,  62d  Cong.,  2d  Bess. 

.     411 


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413 


I 


COIVUVIERCIAL  POLICY 


TARIFF  BOARD  AND  WOOL  LEGISLATION 


The  Hill  bill  (known  officially  as  the  Payne  bill),  prepared 
by  Congressman  Hill  of  Connecticut,  was  a  careful  attempt  to 
frame  a  wool  bill  based  on  the  findings  of  the  Tariff  Board. 
It  received  the  unanimous  support  of  the  Republican  minority 
in  the  House,  but  was  repudiated  by  the  Republican  senators. 
Table  11  shows  the  duties  on  woolen  and  worsted  fabrics  under 
the  Hill  bill  and  compares  them  with  the  compensation  and 
protection  required  by  the  Tariff  Board  report. 

The  Hill  bill  provides  that  the  compensatory  duty  on  fabrics 
shall  be  levied  only  upon  the  "  wool  contained  therein."  This 
idea  was  not  recommended  by  the  Tariff  Board,  but  it  was 
generally  in  favor  among  the  advocates  of  lower  duties.  It 
only  in  part  cures  one  of  the  evils  of  the  present  law  —  that 
of  excessive  duties  on  cheap  fabrics  —  since  shoddy  goods  still 
pay  the  whole  of  the  compensatory  duty.  A  graded  specific 
duty  would  without  doubt  be  more  equitable.  Since  it  was 
adopted,  however,  by  Congressman  Hill,  it  is  taken  into  con- 
sideration in  Table  11.  Column  3  shows  six  fabrics  contain- 
ing less  than  100  per  cent  of  wool,  and  the  compensatory  duty 
in  column  4  is  calculated  only  on  the  actual  wool  content. 
Congressman  Hill  followed  the  recommendations  of  the  Tariff 
Board  both  as  to  the  amount  of  the  compensatory  duty-^  and 
as  to  grading  the  ad  valorem  duties  on  cloth.^^  In  Table  10 
the  total  duty  in  cents  under  the  Hill  bill  is  calculated  and  then 
reduced  to  a  percentage  (column  8). 

Columns  9,  10,  and  11  in  Table  11  show  the  compensation 
and  protection  required  according  to  the  findings  of  the  Tariff 
Board.  In  finding  the  percentages  in  column  9  the  Hill  com- 
pensatory duties  (column  4)  were  assumed  to  correspond  with 
the  recommendations  of  the  Tariff  Board,  which  is  true  with 
the  exceptions  of  the  six  fabrics  containing  cotton.  Column 
10  is  taken  from  column  7  of  Table  10.  When  the  percentages 
in  column  8  are  compa-ed  with  those  in  column  11,  it  will  be 
seen  that  the  duties  under  the  Hill  bill  are  substantially  in 
harmony  with  the  findings  of  the  Tariff  Board. 

The  conservative  Republicans  of  the  Senate  knew,  as  did 
anvone  familiar  with  the  situation,  that  a  revision  of  Schedule 
K  proposed  by  the  majority  of  the  Finance  Committee  had  not 
the  slightest  chance  of  passage.     Certain  conservative  Republi- 

28  Report  of  the  Tariff  Board  on  Schedule  K,  p.  626. 

29  Ibid.,  p.  710. 

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416 


TARIFF  BOARD  AND  WOOL  LEGISLATION 

cans,  however,  desired  to  put  themselves  on  record,  and  the 
Penrose  bill  was  the  result.  In  this  bill  a  new  classification 
of  fabrics  was  adopted;  dress  goods  were,  as  in  the  present 
law,  put  in  a  separate  paragraph;  and  the  compensatory  duty 
was  graded      Table  12  is  a  study  of  the  Penrose  bill  as  Table 

ll^Z  \  fl°^  !u'  ?^^  ^"''  ""'''  ''"'^"^  ^ft*--  ti'e  discus- 
sion of  the  latter,  the  former  will  be  clear  with  a  very  few 

comments.      Column  7  shows  the  total  duty  on  each  sample 

under  the  rates  of  the  Penrose  biU  and,  if  compared  with  the 

thllT  .  Tr5,^"'^  '"  '=°''^"  »'  "  ^»  ^^  evident 
tnat  the  rates  m  the  bill  are  excessive. 

When  attention  is  turned  away  from  the  Penrose  and  HiU 
bills  in  which  the  cloth  duties  are  compound  duties,  to  the 
La  FoUette,  Underwood,  and  Compromise  bills,  in  which  the 
doth  duties  are  ad  valorem  duties,  a  new  method  of  treatment 

rrLll  H  Tf^-  I'r  '■^*''  °"  '"''  ^"''l  ^"<J  "loth  in  the 
*>.  TT  .  "  ^^'^^  ^^  P^""  '^^°'  ""<!  55  per  cent,  respectively 
in  the  Underwood  bill  20  per  cent  and  40  per  cent  respectively;' 
and  in  he  Compromise  bill  29  per  cent  and  49  per  cent,  re 
spec  ively.  Table  13  is  for  the  purpose  of  showing  the  net 
protection  in  per  cent  given  to  cloth  by  each  of  these  bills  and 
to  compare  this  net  protection  with  the  protection  required, 
according  to  the  Tariff  Board,  to  offset  the  difference  ^  con- 
version cost  between  this  country  and  England 

P«fh°fT  ^■'°  J!!*'^  ^^  ^"^  ^^^  ?«■•  "«"*  "^e  •naterial  cost  in 
each  fabric  is  of  the  total  cost,  and  is  used  as  a  basis  for  com- 
puting the  compensatory  duty  under  the  respective  bills  The 
net  protection  given  by  each  bill  is  then  determined  by  sub- 
tracting the  compensatory  duty  in  per  cent  from  the  actual 

^th  th?  T/T  I*^  ''""'  •""'  ^^"^  ''''  '-""  '«  -'"pared 
with  the  needed  ad  valorem  protection  according  to  the  compu- 

ations  which  were  made  in  Table  10.     The  method  by  which 

the  table  was  consti^ctod  will  be  made  clearer  by  an  example. 

cost      Th!      r  '""P'",  ?°-  ^2'  ^^  P^^  ee"t  '«  ">-terial 

cost.      The  rate  on  raw  wool  m  the  Underwood  bill  is  20  oer 

portion  of  t?n  r  °*f.  "''  '''''  '^  ''  P-  cent,  the  p^:: 
portion  of  the  Underwood  duty  on  cloth  required  to  eompen- 

due  tor*9n"'*'""'"/r  *'^  "^*  «  P"-  "'  his  raw  maTrial 
due  to  the  20  per  cent  duty  on  raw  wool.     The  11  per  cent  ia 

then  subtracted  from  40  per  cent  (the  Underwood  duty  on 

417  •' 


II!' 


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TARIFF  BOARD  AND  WOOL  LEGISLATION 


P 


cloth)  to  obtain  the  net  protection  under  this  biU  (column  4). 
The  same  method  was  pursued  in  making  the  computations 
for  the  La  FoUette  and  Compromise  biUs.  If  a  flat  ad  valorem 
rate  on  cloth  be  admitted  desirable,  Table  13  seems  to  show 
that  the  La  FoUette  rate  of  55  per  cent  with  35  per  cent  on 
raw  wool  is  substantially  in  harmony  with  the  findings  ot  the 
Tariff  Board,  although  from  a  protection  point  of  view  bU 
per  cent  would  be  more  nearly  correct.     The  other  two  bills 

are  clearly  too  low.  •  ^  j     -4.1, 

It  is  stated  in  good  faith  by  men  intimately  acquainted  with 
wool  manufactures  in  the  United  States  that  the  industry  can 
not  exist  with  anything  less  than  a  prohibitive  duty.     It  this 
propostion  be  accepted,  the  rates  on  cloth  in  the  Penrose  biU 
can  be  defended;  it  is  also  true  that  a  different  method  ot 
calculation   would   have   to   be   pursued   in   interpreting  the 
statistics  of  the  Tariff  Board.      It  was  assumed  at  the  be- 
ginning of  this  article,  however,  that  a  competitive  rather 
than  a  prohibitive  tariff  was  to  be  framed  and  that  the  rates 
desired  were  simply  to  equalize  competitive  conditions  tor  the 
American  manufacturers  on  the  basis  of  the  existmg  economic 
organization.     It  is  believed  that  the  general  level  of  rates  on 
cloth  in  the  Hill  bill  is  defensible  from  this  standpomt.     The 
method  of  levying  the  compensatory  duty  in  the  Penrose  bill 
is  more  commendable  than  that  of  the  Hill  bill.     A  carefully 
graded  specific  compensatory  duty  would  remove  the  excessive 
duty  on  the  cheaper  fabrics  and  still  preserve  the  desirable 
features  from  the  protection  point  of  view  of  specific  duties. 

Much  useless  debate  would  be  prevented  if  men  would  con- 
sider their  tariff  theories  more  carefully.  It  is  useless  for  a 
protectionist  Republican  and  a  tariff-for-revenue  Democrat  to 
debate  the  desirability  of  the  rates  in  a  particular  bill;  they 
should  debate  premises,  not  conclusions.  The  conclusions  ot 
this  article,  therefore,  should  be  judged  in  the  light  of  the 
premises  laid  down  at  the  beginning.  No  one  of  the  bills 
considered  is  desirable  from  aU  points  of  view.  The  Under- 
wood bill  may  be  desirable  from  the  standpomt  of  the  Demo- 
crats but  undesirable  from  the  standpoint  of  the  protectionist. 
And  so  with  each  one  of  the  bills.  This  point  at  least  should 
be  clear  from  this  discussion.  ^  .      ,  .  ^  j 

Public  men  and  economists  have  not  sufficiently  appreciated 
the  services  of  the  Tariff  Board.      These  services  were  ob- 

420 


scured  by  political  animosities,  aggravated  by  attacks  made 
upon  the  board  for  personal  and  party  reasons.  He  who 
wishes  to  pick  flaws  in  the  Tariff  Board's  report  on  Schedule 
K  can  do  so  with  ease.  Viewing  its  work  constructively, 
however,  it  may  be  fairly  said  that  the  board  did  more  for  an 
honest,  scientific  revision  than  all  the  committee  hearings  and 
investigations  which  preceded  it.  However  unsatisfactory  its 
work  may  be  in  the  eyes  of  some  of  its  critics,  the  fact  remains 
that  its  work  is  infinitely  more  satisfactory  to  the  impartial  ob- 
server than  the  work  of  the  committees  of  Congress.  Its 
faults  are  chiefly  those  of  omission.  It  came  to  its  work 
without  a  precedent  in  this  country  or  abroad  to  guide  it,  and 
every  step  in  the  work  presented  difiicult  problems.  When 
the  time  comes,  as  soon  it  will,  for  Congress  to  establish  a 
permanent  tariff  commission,  this  commission  will  take  up  the 
work  where  the  Tariff  Board  left  it,  and  perhaps  only  then 
will  be  realized  the  worth  of  the  public  service  of  the  mem- 
bers of  the  Tariff  Board. 


APPENDIX  VI 

COTTON  CONVERSION   COSTS  AND  TARIFF  RATES 

The  following  table  is  taken  from  an  address  of  Senator 
Robert  M.  La  FoUette  made  in  support  of  his  substitute  bill 
revising  the  cotton-tariff  schedule  during  the  tariff  debate  of 
1913  and  printed  in  the  Congressional  Record,  Volume  50, 
Part  5,  63d  Congress,  1st  Session,  September  9,  1913,  p.  4591 
et  seq.  The  costs  contained  in  the  table  are  taken  from  the 
Taft  Tariff  Board  report  on  "  Cotton  Manufactures,"  House 
of  Representatives  Document  No.  643,  62d  Congress,  2d  Ses- 
sion (1912),p.  442etse2. 

Senator  La  Toilette  in  introducing  the  table  explained  its 
structure  as  follows : 


Mr.  President,  I  submit  another  table  based  on  the  Tariff 
Board's  samples.  I  have  before  me  the  cotton  textile  samples, 
showing  the  actual  cloth,  upon  which  the  Tariff  Board  based  its 
investigation  of  1912.  They  are,  I  think,  exactly  100  in  number. 
They  are  typical  of  the  entire  cotton  industry  of  this  country. 

I  have  applied  to  these  samples  the  Payne-Aldrich  rates.  I 
have  had  the  same  computations  made  upon  the  rates  in  the  pend- 
ing cotton  schedule  and  in  the  substitute  which  I  have  offered. 

This  table  gives  the  kind  of  cloth,  the  number  of  square  yards 
to  the  pound,  the  kind  of  finish,  the  total  American  cost  of  con- 
version per  square  yard,  the  total  English  selling  price  per  square 
yard,  the  duty  per  square  yard  under  the  Aldrich  Act,  the  duty 
per  square  yard  under  the  pending  bill,  and  also  the  duty  per 
square  yard  under  the  substitute  which  I  have  presented. 

Mark  you,  "Sir.  President,  this  table  shows  the  total  cost  of 
conversion.  That  means  the  total  expense  of  making  any  one 
of  these  fabrics  —  converting  them  from  the  raw  material  as  it 
comes  to  the  factory  into  the  finished  product  as  it  goes  upon 
the  market. 

Now,  the  utmost  that  anyone  contending  for  the  principle  of 
protection  asks  to-day  is  that  the  tariff  shaU  measure  the  differ- 
ence between  the  cost  of  production  in  this  country  and  abroad; 
that  is,  the  difference  in  the  conversion  cost. 

I  have  not  figured  out  in  this  table  the  difference  in  the  con- 
version cost,  but  I  have  the  total  American  conversion  cost. 

422 


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APPENDIX  VII 

ANTI-DUMPING   LEGISLATION   IN    CANADA   AND   THE   UNITED 

STATES 

1.  Canadian  Law^ 

Sec.  6.  In  the  case  of  articles  exported  to  Canada  of  a 
class  or  kind  made  or  produced  in  CaDada  if  the  export  or 
actual  selling  price  to  an  importer  in  Canada  be  less  than  the 
fair  market  value  of  the  same  article  when  sold  for  home  con- 
sumption in  the  usual  and  ordinary  course  in  the  country 
whence  exported  to  Canada  at  the  time  of  its  exportation  to 
Canada  there  shall,  in  addition  to  the  duties  otherwise  estab- 
lished, be  levied,  collected  and  paid  on  such  article,  on  its  im- 
portation into  Canada,  a  special  duty  (or  dumping  duty) 
equal  to  the  difference  between  the  said  selling  price  of  the 
article  for  export  and  the  said  fair  market  value  thereof  for 
home  consumption;  and  such  special  duty  (or  dumping  duty) 
shall  be  levied,  collected  and  paid  on  such  article  although  it 
is  not  otherwise  dutiable. 

Provided  that  the  said  special  duty  shall  not  exceed  fifteen 
per  cent  ad  valorem  in  any  case; 

Provided  also  that  the  following  goods  shall  be  exempt  from 
such  special  duty,  viz. :  — 

(a)  Goods  whereon  the  duties  otherwise  established  are  equal 
to  fifty  per  cent  ad  valorem; 

(6)  Goods  of  a  class  subject  to  excise  duty  in  Canada; 

(c)  Sugar  refined  in  the  United  Kingdom; 

(d)  Binder  twine  or  twine  for  harvest  binders  manufactured 
from  New  Zealand  hemp,  istle  or  tampico  fibre,  sisal  grass,  or 
sunn,  or  a  mixture  of  any  two  or  more  of  them,  of  single  ply 
and  measuring  not  exceeding  six  hundred  feet  to  the  pound. 

Provided  further  that  excise  duties  shall  be  disregarded  in 
estimating  the  market  value  of  goods  for  the  purposes  of 
special  duty  when  the  goods  are  entitled  to  entry  under  the 
British  Preferential  Tariff. ^__^ 

1  Provisions  of  the  Canadian  Customs  Tariff,  1909,  in  regard  to 
special  or  dumping  duty. 

430 


ANTI-DUMPING  LEGISLATION 

(2)  "  Export  price  "  or  ''  selling  price  "  in  this  section  shaU 
be  held  to  mean  and  include  the  exporter's  price  for  the  goods, 
exclusive  of  all  charges  thereon  after  their  shipment  from  the 
place  whence  exported  directly  to  Canada. 

(3)  If  at  any  time  it  appears  to  the  satisfaction  ot  the 
Governor  in  Council  on  a  report  from  the  Minister  of  Customs, 
that  the  payment  of  the  special  duty  by  this  section  provided 
for  is  being  evaded  by  the  shipment  of  goods  on  consignment 
without  sale  prior  to  such  shipment,  the  Governor  m  Council 
may  in  any  case  or  class  of  cases  authorize  such  action  as  is 
deemed  necessary  to  collect  on  such  goods  or  any  of  them  the 
same  special  duty  as  if  the  goods  had  been  sold  to  an  importer 
in  Canada  prior  to  tlieir  shipment  to  Canada. 

(4)  If  the  full  amount  of  any  special  duty  of  customs  is 
not  paid  on  goods  imported,  the  customs  entry  thereof  shall 
be  amended  and  the  deficiency  paid  upon  the  demand  ot  the 

Collector  of  Customs. 

(5)  The  Minister  of  Customs  may  make  such  regulations 
as  are  deemed  necessary  for  carrying  out  the  provisions  of  this 
section  and  for  the  enforcement  thereof. 

(6)  Such  regulations  may  provide  for  the  temporary  ex- 
emption from  special  duty  of  any  article  or  class  of  articles, 
when  it  is  established  to  the  satisfaction  of  the  Minister  of 
Customs  that  such  articles  are  not  made  or  sold  in  Canada  m 
substantial  quantities,  and  offered  for  sale  to  all  purchasers 
on  equal  terms,  under  like  conditions,  having  regard  to  the 
custom  and  usage  of  trade. 

(7)  Such  regulations  may  also  provide  for  the  exemption 
from  special  duty  of  any  article  when  the  difference  between 
the  fair  market  value  and  the  selling  price  thereof  to  the  im- 
porter as  aforesaid  amounts  only  to  a  small  percentage  of  its 
fair  market  value. 

2.  United  States  Law* 

Sec.  800.  That  when  used  in  this  title  the  term  "  person  " 
includes  partnerships,  corporations,  and  associations. 

2  Provisions  of  *'An  Act  To  increase  the  revenue  and  for  other 
purposes''  enacted  by  the  Congress  of  the  United  States  and 
approved  by  the  President  September  8,  1916,  m  regard  to  unfair 
competition. 

431 


|: 


r^ 


COMMERCIAL  POLICY 

Sec.  801.  That  it  shall  be  unlawful  for  any  person  import- 
ing or  assisting  in  importing  any  articles  from  any  foreign 
country  into  the  United  States,  commonly  and  systematically 
to  import,  sell  or  cause  to  be  imported  or  sold  such  articles 
within  the  United  States  at  a  price  substantially  less  than  the 
actual  market  value  or  wholesale  price  of  such  articles,  at  the 
time  of  exportation  to  the  United  States,  in  the  principal 
markets  of  the  country  of  their  production,  or  of  other  for- 
eign countries  to  which  they  are  commonly  exported  after 
adding  to  such  market  value  or  wholesale  price,  freight,  duty, 
and  other  charges  and  expenses  necessarily  incident  to  the  im- 
portation and  sale  thereof  in  the  United  States:  Provided, 
That  such  act  or  acts  be  done  with  the  intent  of  destroying  or 
injuring  an  industry  in  the  United  States,  or  of  preventing 
the  establishment  of  an  industry  in  the  United  States,  or  of 
restraining  or  monopolizing  any  part  of  trade  and  commerce 
in  such  articles  in  the  United  States. 

Any  person  who  violates  or  combines  or  conspires  with  any 
other  person  to  violate  this  section  is  guilty  of  a  misdemeanor, 
and,  on  conviction  thereof,  shall  be  punished  by  a  fine  not 
exceeding  $5,000,  or  imprisonment  not  exceeding  one  year,  or 
both,  in  the  discretion  of  the  court. 

Any  person  injured  in  his  business  or  property  by  reason 
of  any  violation  of,  or  combination  or  conspiracy  to  violate, 
this  section,  may  sue  therefor  in  the  district  court  of  the 
United  States  for  the  district  in  which  the  defendant  resides 
or  is  found  or  has  an  agent,  without  respect  to  the  amount  in 
controversy,  and  shall  recover  threefold  the  damages  sustained, 
and  the  cost  of  the  suit,  including  a  reasonable  attorney's  fee. 

The  foregoing  provisions  shall  not  be  construed  to  deprive 
the  proper  State  courts  of  jurisdiction  in  actions  for  damages 
thereunder. 

Sec.  802.  That  if  any  article  produced  in  a  foreign  country 
is  imported  into  the  United  States  under  any  agreement,  un- 
derstanding, or  condition  that  the  importer  thereof  or  any 
other  person  in  the  United  States  shall  not  use,  purchase,  or 
deal  in,  or  shall  be  restricted  in  his  using,  purchasing,  or 
dealing  in,  the  articles  of  any  other  person,  there  shall  be 
levied,  collected,  and  paid  thereon,  in  addition  to  the  duty 
otherwise  imposed  by  law,  a  special  duty  equal  to  double  the 
amount  of  such  duty:    Provided,  That  the  above  shall  not  be 

432 


ANTI-DUMPING  LEGISLATION 

interpreted  to  prevent  the  establishing  in  this  country  on  the 
part  of  a  foreign  producer  of  an  exclusive  agency  for  the  sale 
in  the  United  States  of  the  products  of  said  foreign  producer 
or  merchant,  nor  to  prevent  such  exclusive  agent  from  agree- 
ing not  to  use,  purchase,  or  deal  in  the  article  of  any  other 
person,  but  this  proviso  shall  not  be  construed  to  exempt  from 
the  provisions  of  this  section  any  article  imported  by  such 
exclusive  agent  if  such  agent  is  required  by  the  foreign  pro- 
ducer or  if  it  is  agreed  between  such  agent  and  such  foreign 
producer  that  any  agreement,  understanding  or  condition  set 
out  in  this  section  shall  be  imposed  by  such  agent  upon  the 
sale  or  other  disposition  of  such  article  to  any  person  m  ttie 

United  States. 

Sec.  803.  That  the  Secretary  of  the  Treasury  shall  make 
such  rules  and  regulations  as  are  necessary  for  the  carrying 
out  of  the  provisions  of  section  eight  hundred  and  two. 

Sec.  804.  That  whenever  any  country,  dependency,  or  colony 
shall  prohibit  the  importation  of  any  article  the  product  of 
the  soil  or  industry  of  the  United  States  and  not  injurious  to 
health  or  morals,  the  President  shall  have  power  to  prohibit, 
during  the  period  such  prohibition  is  in  force,  the  importa- 
tion into  the  United  States  of  similar  articles,  or  in  case  the 
United  States  does  not  import  similar  articles  from  that 
country,  then  other  articles,  the  products  of  such  country,  de- 
pendency, or  colony. 

And  the  Secretary  of  the  Treasury,  with  the  approval  ot 
the  President,  shall  make  such  rules  and  regulations  as  are 
necessary  for  the  execution  of  the  provisions  of  this  section. 


EXPORT  ASSOCIATIONS  ACT 


APPENDIX  VIII 

KXPORT  ASSOCIATIONS  ACT^ 

Be  it  enacted,  etc,  That  the  words  "  export  trade  "  wherever 
used  in  this  Act  mean  solely  trade  or  commerce  in  goods,  wares, 
or  merchandise  exported,  or  in  the  course  of  being  exported 
from  the  United  States  or  any  Territori'  thereof  to  any  for- 
eign nation;  but  the  words  "  export  trade  "  shall  not  be  deemed 
to  include  the  production,  manufacture,  or  selling  for  con- 
sumption or  for  resale,  within  the  United  States  or  any  Terri- 
tory thereof,  of  such  goods,  wares,  or  merchandise,  or  any 
act  in  the  course  of  such  production,  manufacture,  or  selling 
for  consumption  or  for  resale. 

That  the  words  "  trade  within  the  United  States  "  wherever 
used  in  this  Act  mean  trade  or  commerce  among  the  several 
States  or  in  any  Territory  of  the  United  States,  or  in  the  Dis- 
trict of  Columbia,  or  between  any  such  Territory  and  another, 
or  between  any  such  Territory  or  Territories  and  any  State  or 
States  or  the  District  of  Columbia,  or  between  the  District  of 
Columbia  and  any  State  or  States. 

That  the  word  "  association '^  wherever  used  in  this  Act 
means  any  corporation  or  combination,  by  contract  or  other- 
wise, of  two  or  more  persons,  partnerships,  or  corporations. 

Sec.  2.  That  nothing  contained  in  the  Act  entitled  "An 
Act  to  protect  trade  and  commerce  against  unlawful  restraints 
and  monopolies,"  approved  July  second,  eighteen  hundred  and 
ninety,  shall  be  construed  as  declaring  to  be  illegal  an  associa- 
tion entered  into  for  the  sole  purpose  of  engaging  in  export 
trade  and  actually  engaged  solely  Jn  such  export  trade,  or  an 
agreement  made  or  act  done  in  the  course  of  export  trade  by 
such  association,  provided  such  association,  agreement,  or  act 
is  not  in  restraint  of  trade  within  the  United  States,  and  is 
not  in  restraint  of  the  export  trade  of  any  domestic  com- 
petitor of  such  association:    And  provided  further.  That  such 

1  * '  An  Act  To  promote  export  trade,  and  for  other  purposes, ' ' 
commonly  known  as  the  Webb  Act,  approved  by  the  President 
April  10,  1918. 

434 


association  does  not,  either  in  the  United  States  or  elsewhere, 
enter  into  any  agreement,  understanding,  or  conspiracy,  or  do 
any  act  which  artificially  or  intentionally  enhances  or  de- 
presses prices  within  the  United  States  of  commodities  of  the 
class  exported  by  such  association,  or  which  substantially 
lessens  competition  within  the  United  States  or  otherwise  re- 
strains trade  therein. 

Sec.  3.  That  nothing  contained  in  section  seven  ot  the  Act 
entitled  "  An  Act  to  supplement  existing  laws  against  unlawful 
restraints  and  monoplies,  and  for  other  purposes,"  approved 
October  fifteenth,  nineteen  hundred  and  fourteen,  shall  be  con- 
strued to  forbid  the  acquisition  or  ownership  by  any  corpora- 
tion of  the  whole  or  any  part  of  the  stock  or  other  capital  of 
any  corporation  organized  solely  for  the  purpose  of  engaging 
in  export  trade,  and  actually  engaged  solely  in  such  export 
trade,  unless  the  effect  of  such  acquisition  or  ownership  may 
be  to  restrain  trade  or  substantially  lessen  competition  withm 

the  United  States.  '  i.  j      ^ 

Sec.  4.  That  the  prohibition  against  "unfair  methods  ot 
competition"  and  the  remedies  provided  for  enforcing  said 
prohibition  contained  in  the  Act  entitled  "  An  Act  to  create  a 
Federal  Trade  Commission,  to  define  its  powers  and  duties, 
and  for  other  purposes,"  approved  September  twenty-sixth, 
nineteen  hundred  and  fourteen,  shall  be  construed  as  extend- 
ing to  unfair  methods  of  competition  used  in  export  trade 
against  competitors  engaged  in  export  trade,  even  though  the 
acts  constituting  such  unfair  methods  are  done  without  the 
territorial  jurisdiction  of  the  United  States. 

Sec.  5.  That  every  association  now  engaged  solely  in  export 
trade,  within  sixty  days  after  the  passage  of  this  Act,  and 
every  association  entered  into  hereafter  which  engages  solely 
in  export  trade,  within  thirty  days  after  its  creation,  shall 
file  with  the  Federal  Trade  Commission  a  verified  written 
statement  setting  forth  the  location  of  its  offices  or  places  of 
business  and  the  names  and  addresses  of  all  its  officers  and  of 
all  its  stockholders  or  members,  and  if  a  corporation,  a  copy 
of  its  certificate  or  articles  of  incorporation  and  by-laws,  and 
if  unincorporated,  a  copy  of  its  articles  or  contract  of  associa- 
tion, and  on  the  first  day  of  January  of  each  year  thereafter 
it  shall  make  a  like  statement  of  the  location  of  its  offices  or 
places  of  business  and  the  names  and  addresses  of  aU  its 

435 


^ 


COMMERCIAL  POLICY 

officers  and  of  all  its  stockholders  or  members  and  of  all 
amendments  to  and  changes  in  its  articles  or  certificate  of  in- 
corporation or  in  its  articles  or  contract  of  association.  It 
shall  also  furnish  to  the  commission  such  information  as  the 
commission  may  require  as  to  its  organization,  business,  con- 
duct, practices,  management,  and  relation  to  other  associa- 
tions, corporations,  partnerships,  and  individuals.  Any  as- 
sociation which  shall  fail  so  to  do  shall  not  have  the  benefit 
of  the  provisions  of  section  two  and  section  three  of  this  Act, 
and  it  shall  also  forfeit  to  the  United  States  the  sum  of  $100 
for  each  and  every  day  of  the  continuance  of  such  failure, 
which  forfeiture  shall  be  payable  into  the  Treasury  of  the 
United  States,  and  shall  be  recoverable  in  a  civil  suit  in  the 
name  of  the  United  States  brought  in  the  district  where  the 
association  has  its  principal  office,  or  in  any  district  in  which 
it  shall  do  business.  It  shall  be  the  duty  of  the  various  district 
attorneys,  under  the  direction  of  the  Attorney  General  of  the 
United  States,  to  prosecute  for  the  recovery  of  the  forfeiture. 
The  costs  and  expenses  of  such  prosecution  shall  be  paid  out 
of  the  appropriation  for  the  expenses  of  the  courts  of  the 
United  States. 

Whenever  the  Federal  Trade  Commission  shall  have  reason 
to  believe  that  an  association  or  any  agreement  made  or  act 
done  by  such  association  is  in  restraint  of  trade  within  the 
United  States  or  in  restraint  of  the  export  trade  of  any 
domestic  competitor  of  such  association,  or  that  an  association 
either  in  the  United  States  or  elsewhere  has  entered  into  any 
agreement,  understanding,  or  conspiracy,  or  done  any  act 
which  artificially  or  intentionally  enhances  or  depresses  prices 
within  the  United  States  of  commodities  of  the  class  exported 
by  such  association,  or  which  substantially  lessens  competition 
within  the  United  States  or  otherwise  restrains  trade  therein, 
it  shall  summon  such  association,  its  officers,  and  agents  to 
appear  before  it,  and  thereafter  conduct  an  investigation  into 
the  alleged  violations  of  law.  Upon  investigation,  if  it  shall 
conclude  that  the  law  has  been  violated,  it  may  make  to  such 
association  recommendations  for  the  readjustment  of  its  busi- 
ness, in  order  that  it  may  thereafter  maintain  its  organization 
and  management  and  conduct  its  business  in  accordance  with 
law.  If  such  association  fails  to  comply  with  the  recom- 
mendations of  the  Federal  Trade  Commission,  said  commis- 

436 


EXPORT  ASSOCIATIONS  ACT 

sion   shall   refer   its    findings    and    recommendations   to    the 
Attorney  General  of  the  United  States  for  such  action  thereon 

as  he  may  deem  proper.  _        .,-0^1 

For  the  purpose  of  enforcing  these  provisions  the  b  ederai 
Trade  Commission  shall  have  all  the  powers,  so  far  as  ap- 
plicable, given  it  in  "  An  Act  to  create  a  Federal  Trade  Com- 
mission, to  define  its  powers  and  duties,  and  for  other 
purposes." 


i 


( 


APPENDIX  IX 


COVENANT  OF  THE  LEAGUE  OP  NATIONS^ 


In  order  to  promote  international  cooperation  and  to  achieve 
international  peace  and  security,  by  the  acceptance  of  obliga- 
tions not  to  resort  to  war,  by  the  prescription  of  open,  just 
and  honorable  relations  between  nations,  by  the  firm  establish- 
ment of  the  understandings  of  international  law  as  to  actual 
rule  of  conduct  among  Governments,  and  by  the  maintenance 
of  justice  and  a  scrupulous  respect  for  all  treaty  obligations 
in  the  dealings  of  organized  peoples  with  one  another,  the  high 
contracting  parties  agree  to  this  covenant  of  the  League  of 
Nations. 

Article  I 

The  original  members  of  the  League  of  Nations  shall  be 
those  of  the  signatories  which  are  named  in  the  annex  to  this 
covenant  and  also  such  of  those  other  States  named  in  the 
annex  as  shall  accede  without  reservation  to  this  covenant. 
Such  accessions  shall  be  effected  by  a  declaration  deposited 
with  the  Secretariat  within  two  months  of  the  coming  into 
force  of  the  covenant.  Notice  thereof  shall  be  sent  to  all 
other  members  of  the  League. 

Any  fully  self-governing  State,  dominion  or  colony  not 
named  in  the  annex  may  become  a  member  of  the  League  if 
its  admission  is  agreed  to  by  two-thirds  of  the  Assembly,  pro- 
vided that  it  shall  give  effective  guarantees  of  its  sincere  inten- 
tion to  observe  its  international  obligations,  and  shall  accept 
such  regulations  as  may  be  prescribed  by  the  League  in  regard 
to  its  military  and  naval  forces  and  armaments. 

Any  member  of  the  League  may,  after  two  years'  notice  of 
its  intention  so  to  do,  withdraw  from  the  League,  provided  that 
all  its  international  obligations  and  all  its  obligations  under 
this  covenant  shall  have  been  fulfilled  at  the  time  of  its  with- 
drawal. 

1  Adopted  by  the  Peace  Conference  in  plenary  session  in  Paris, 
April  28,  1919. 

438 


COVENANT  OF  THE  LEAGUE  OF  NATIONS 

Article  II 
The  aetion  of  the  League  under  this  covenant  shaU  be 
effected  through  the  instrumentality  of  an  Assembly  and  of  a 
Council,  with  a  permanent  Secretariat. 

Article  III 
The  Assembly  shall  consist  of  representatives  of  the  mem- 

%\f  limJriu  meet  at  stated  intervals   and  from  time 
to  time  as  oeci^ion  may  require,  at  the  seat  of  the  League  or 

at  such  other  place  as  T^ ''^  "^f  i-^^^X"  ^^h  any  matter 

The  Assembly  may  deal  at  its  meetmgs  ''""J  , 

within  the  sphere  of  action  of  the  League  or  affectmg  the 

'ITmeetinrS 'the  Assembly,  each  member  of  the  League 
shall  have  one  vote,  and  may  have  not  more  than  three  repre- 
sentatives. 

Article  IY 
The  Council  shall  consist  of  representatives  of  tbe  JJ-iM 
States  of  America,  of  the  British  Empire,  of  France  of  My, 
and  of  Japan,  together  with  representatives  of  fo^r  other 
members  of  the  League.  These  four  members  of  «»«  league 
shaU  be  selected  by  the  Assembly  from  time  to  time  in  its 
discretion  Until  the  appointment  of  the  representatives  of 
Sur  members  of  the  League  first  selected  by  the  Assembly 
representatives  of  Belgium,  Brazil,  Greece,  and  Spain  shall 

"'wftf  S:  tp-" the  majority  of  the  Assembly,  the 
CoTnS  m:y  uLe  additional  members  oy^e  Lea^^hos^^ 
representatives  shall  always  be  members  of  the  Council,  tne 
cSw  th  like  approval  may  increase  the  number  of  mem- 
beTsof  Z  League  to  be  selected  by  the  Assembly  for  repre- 

sentation  on  the  Council.  •       ^„,, 

The  Council  shall  meet  from  time  to  tmie  «« J";™  "^J 

require,  and  at  least  once  a  year,  at  the  seat  of  the  League, 

or  at  such  other  place  as  may  be  decided  upon. 

The  Council  may  deal  at  its  meetings  with  any  matter  within 

the  sphere  of  action  of  the  League  or  affecting  the  peace  of 

the  world. 

439 


COMMERCIAL  POLICY 


COVENANT  OF  THE  LEAGUE  OF  NATIONS 


f  ( 


m 


Any  member  of 
shall  be  invited  to 
any  meeting  of  the 
specially  affecting 

At  meetings  of 
represented  on  the 
not  more  than  one 


the  League  not  represented  on  the  Council 
send  a  representative  to  sit  as  a  member  at 
Council  during  the  consideration  of  matters 
the  interests  of  that  member  of  the  League, 
the  Council,  each  member  of  the  League 
Council  shall  have  one  vote,  and  may  have 
representative. 


Article  V 

Except  where  otherwise  expressly  provided  in  this  cove- 
nant, or  by  the  terms  of  this  treaty,^  decisions  at  any  meeting 
of  the  Assembly  or  of  the  Council  shall  require  the  agreement 
o±  all  the  members  of  the  League  represented  at  the  meeting. 

All  matters  of  procedure  at  meetings  of  the  Assembly  or  of 
the  Council,  the  appointment  of  committees  to  investigate  par- 
ticular matters,  shall  be  regulated  by  the  Assembly  or  by  the 
Council  and  may  be  decided  by  a  majority  of  the  members  of 
the  League  represented  at  the  meeting.  The  first  meeting  of 
the  Assembly  and  the  first  meeting  of  the  Council  shall  be 
summoned  by  the  President  of  the  United  States  of  America. 

Article  VI 

The  permanent  Secretariat  shall  be  established  at  the  seat 
of  the  League.  The  Secretariat  shall  comprise  a  Secretary- 
General  and  such  secretaries  and  staff  as  may  be  required. 

The  first  Secretary-General  shall  be  the  person  named  in 
the  annex;  thereafter  the  Secretary-General  shall  be  appointed 
by  the  Council,  with  the  approval  of  the  majority  of  the 
Assembly. 

The  secretaries  and  the  staff  of  the  Secretariat  shall  be  ap- 
pomted  by  the  Secretary-General  with  the  approval  of  the 
Council. 

^    The  Secretary-General  shall  act  in  that  capacity  at  all  meet- 
ings of  the  Assembly  and  of  the  Council. 

The  expenses  of  the  Secretariat  shall  be  borne  by  the  mem- 
bers of  the  League  in  accordance  with  the  apportionment  of 
the  expenses  of  the  International  Bureau  of  the  Universal 
Postal  Union. 


2  The  treaty  of  peace,  of  which  this  covenant  forms  a  part :  in 
other  portions  of  the  treaty  certain  duties  are  assigned  to  the 
Council  of  the  League  of  Nations.  ^ 

440 


Article  VII 

The  seat  of  the  League  is  established  at  Geneva. 

The  Council  may  at  any  time  decide  that  the  seat  of  the 
League  shall  be  established  elsewhere. 

All  positions  under  or  in  connection  with  the  League,  in- 
cluding the  Secretariat,  shall  be  open  equally  to  men  and 
women. 

Representatives  of  the  members  of  the  League  and  officials 
of  the  League  when  engaged  on  the  business  of  the  League 
shall  enjoy  diplomatic  privileges  and  immunities. 

The  buildings  and  other  property  occupied  by  the  League 
or  its  officials,  or  by  representatives  attending  its  meetings, 
shall  be  inviolable. 

Article  VIII 

The  members  of  the  League  recognize  that  the  maintenance 
of  a  peace  requires  the  reduction  of  national  armaments  to  the 
lowest  point  consistent  with  the  national  safety  and  the  en- 
forcement by  common  action  of  international  obligations. 

The  Council,  taking  account  of  the  geographical  situation 
and  circumstances  of  each  State,  shall  formulate  plans  for 
such  reduction  for  the  consideration  and  action  of  the  several 
Governments. 

Such  plans  shall  be  subject  to  reconsideration  and  revision 
at  least  every  ten  years. 

After  these  plans  shall  have  been  adopted  by  the  several 
Governments,  limits  of  armaments  therein  fixed  shall  not  be 
exceeded  without  the  concurrence  of  the  Council. 

The  members  of  the  League  agree  that  the  manufacture  by 
private  enterprise  of  munitions  and  implements  of  war  is 
open  to  grave  objections.  The  Council  shall  advise  how  the- 
evil  effects  attendant  upon  such  manufacture  can  be  pre- 
vented, due  regard  being  had  to  the  necessities  of  those  mem- 
bers of  the  League  which  are  not  able  to  manufacture  the 
munitions  and  implements  of  war  necessary  for  their  safety. 

The  members  of  the  League  undertake  to  interchange  full 
and  frank  information  as  to  the  scale  of  their  armaments, 
their  military  and  naval  programmes  and  the  condition  of 
such  of  their  industries  as  are  adaptable  to  warlike  purposes. 

441 


COMMERCIAL  POLICY 


COVENANT  OF  THE  LEAGUE  OF  NATIONS 


1  i 
1  < 


Article  IX 

A  permanent  commission  shall  be  constituted  to  advise  the 
Council  on  the  execution  of  the  provisions  of  Articles  I  and 
VIII  and  on  military  and  naval  questions  generally. 

Article  X 

The  members  of  the  League  undertake  to  respect  and  pre- 
serve as  against  external  aggression  the  territorial  integrity 
and  existing  political  independence  of  all  members  of  the 
League.  In  case  of  any  such  aggression  or  in  case  of  any 
threat  or  danger  of  such  aggression,  the  Council  shall  advise 
upon  the  means  by  which  this  obligation  shall  be  fulfilled. 

Article  XI 

Any  war  or  threat  of  war,  whether  immediately  affecting 
any  of  the  members  of  the  League  or  not,  is  hereby  declared  a 
matter  of  concern  to  the  whole  League,  and  the  League  shall 
take  any  action  that  may  be  deemed  wise  and  effectual  to  safe- 
guard the  peace  of  nations.  In  case  any  such  emergency 
should  arise,  the  Secretary-General  shall,  on  the  request  of  any 
member  of  the  League,  forthwith  summon  a  meeting  of  the 
Council. 

It  is  also  declared  to  be  the  fundamental  right  of  each  mem- 
ber of  the  League  to  bring  to  the  attention  of  the  Assembly 
or  of  the  Council  any  circumstance  whatever  affecting  inter- 
national relations  which  threatens  to  disturb  either  the  peace 
or  the  good  understanding  between  nations  upon  which  peace 
depends. 

Article  XII 

The  members  of  the  League  agree  that  if  there  should  arise 
between  them  any  dispute  likely  to  lead  to  a  rupture,  they  will 
submit  the  matter  either  to  arbitration  or  to  inquiry  by  the 
Council,  and  they  agree  in  no  case  to  resort  to  war  until  three 
months  after  the  award  by  the  arbitrators  or  the  report  by 
the  Council. 

In  any  case  under  this  Article  the  award  of  the  arbitrators 
shall  be  made  within  a  reasonable  time,  and  the  report  of  the 
Council  shall  be  made  within  six  months  after  the  submission 
of  the  dispute. 

442 


Article  XIII 

The  members  of  the  League  agree  that  whenever  any  dispute 
shall  arise  between  them  which  they  recognize  to  be  suitable 
for  submission  to  arbitration  and  which  cannot  be  satisfac- 
torily settled  by  diplomacy,  they  will  submit  the  whole  subject 
matter  to  arbitration.  Disputes  as  to  the  interpretation  of 
a  treaty,  as  to  any  question  of  international  law,  as  to  the 
existence  of  any  fact,  which,  if  established,  would  constitute  a 
breach  of  any  international  obligation,  or  as  to  the  extent  and 
nature  of  the  reparation  to  be  made  for  any  such  breach,  are 
declared  to  be  among  those  which  are  generally  suitable  for 
submission  to  arbitration.  For  the  consideration  of  any  such 
dispute  the  court  of  arbitration  to  which  the  case  is  referred 
shall  be  the  court  agreed  on  by  the  parties  to  the  dispute  or 
stipulated  in  any  convention  existing  between  them. 

The  members  of  the  League  agree  that  they  will  carry  out 
in  full  good  faith  any  award  that  may  be  rendered  and  that 
they  will  not  resort  to  war  against  a  member  of  the  League 
which  complies  therewith.  In  the  event  of  any  failure  to 
carry  out  such  an  award,  the  Council  shall  propose  what  steps 
should  be  taken  to  give  effect  thereto. 

Article  XIV 

The  Council  shall  formulate  and  submit  to  the  members  of 
the  League  for  adoption  plans  for  the  establishment  of  a 
permanent  court  of  international  justice.  The  court  shall  be 
competent  to  hear  and  determine  any  dispute  of  an  inter- 
national character  which  the  parties  thereto  submit  to  it.  The 
court  may  also  give  an  advisory  opinion  upon  any  dispute  or 
question  referred  to  it  by  the  Council  or  by  the  Assembly. 

Article  XV 

If  there  should  arise  between  members  of  the  League  any 
dispute  likely  to  lead  to  a  rupture,  which  is  not  submitted  to 
arbitration  as  above,  the  members  of  the  League  agree  that 
they  will  submit  the  matter  to  the  Council.  Any  party  to  the 
dispute  may  effect  such  submission  by  giving  notice  of  the 
existence  of  the  dispute  to  the  Secretary-General,  who  will 
make  all  necessary  arrangements  for  a  full  investigation  and 

443 


COMMERCIAL  POLICY 

consideration  thereof.  For  this  purpose  the  parties  to  the 
dispute  will  communicate  to  the  Secretary-General,  as  promptly 
as  possible,  statements  of  their  case,  all  the  relevant  facts  and 
papers;  the  CouncU  may  forthwith  direct  the  publication 
thereof. 

The  Council  shall  endeavor  to  effect  a  settlement  of  any 
dispute,  and  if  such  efforts  are  successful,  a  statement  shaU  be 
made  public,  giving  such  facts  and  explanations  regarding  the 
dispute  and  terms  of  settlement  thereof  as  the  Council  may 
deem  appropriate. 

If  the  dispute  is  not  thus  settled,  the  Council  either  unani- 
mously or  by  a  majority  vote  shall  make  and  publish  a  report 
containing  a  statement  of  the  facts  of  the  dispute  and  the 
recommendations  which  are  deemed  just  and  proper  in  re^^ard 
thereto.  * 

Any  member  of  the  League  represented  on  the  Council  may 
make  public  a  statement  of  the  facts  of  the  dispute  and  of  its 
conclusions  regarding  the  same. 

If  a  report  by  the  Council  is  unanimously  agreed  to  by  the 
members  thereof  other  than  the  representatives  of  one  or  more 
of  the  parties  to  the  dispute,  the  members  of  the  League  agree 
that  they  will  not  go  to  war  with  any  party  to  the  dispute 
which  complies  with  the  recommendations  of  the  report. 

If  the  Council  fails  to  reach  a  report  which  is  unanimously 
agreed  to  by  the  members  thereof,  other  than  the  representa- 
tives of  one  or  more  of  the  parties  to  the  dispute,  the  members 
of  the  League  reserve  to  themselves  the  right  to  take  such 
action  as  they  shall  consider  necessary  for  the  maintenance  of 
right  and  justice. 

If  the  dispute  between  the  parties  is  claimed  by  one  of 
them,  and  is  found  by  the  Council,  to  arise  out  of  a  matter 
which  by  international  law  is  solely  within  the  domestic  juris- 
diction of  that  party,  the  Council  shall  so  report,  and  shall 
make  no  recommendations  as  to  its  settlement. 

The  Council  may  in  any  case  under  this  Article  refer  the 
dispute  to  the  Assembly.  The  dispute  shall  be  so  referred  at 
the  request  of  either  party  to  the  dispute,  provided  that  such 
request  be  made  within  fourteen  days  after  the  submission  of 
the  dispute  to  the  Council. 

In  any  case  referred  to  the  Assembly  all  the  provisions  of 

444 


COVENANT  OF  THE  LEAGUE  OF  NATIONS 

this  Article  and  of  Article  XII  relating  to  the  action  and 
powers  of  the  Council  shall  apply  to  the  action  and  powers 
of  the  Assembly,  provided  that  a  report  made  by  the  Assem- 
bly, if  concurred  in  by  the  representatives  of  those  members  of 
the  League  represented  on  the  Council  and  of  a  majority  of 
the  other  members  of  the  League,  exclusive  in  each  case  of  the 
representatives  of  the  parties  to  the  dispute,  shall  have  the 
same  force  as  a  report  by  the  Council  concurred  in  by  all  the 
members  thereof  other  than  the  representatives  of  one  or  more 
of  the  parties  to  the  dispute. 


Article  XVI 

Should  any  member  of  the  League  resort  to  war  in  disregard 
of  its  covenants  under  Articles  XII,  XIII,  or  XV,  it  shall 
ipso  facto  be  deemed  to  have  committed  an  act  of  Avar  against 
all  other  members  of  the  League,  which  hereby  undertake  im- 
mediately to  subject  it  to  the  severance  of  all  trade  or  financial 
relations,  the  prohibition  of  all  intercourse  between  their 
nationals  and  the  nationals  of  the  covenant-breaking  State, 
and  the  prevention  of  all  financial,  commercial,  or  personal 
intercourse  between  the  nationals  of  the  covenant-breaking 
State  and  the  nationals  of  any  other  State,  whether  a  member 
of  the  League  or  not. 

It  shall  be  the  duty  of  the  Council  in  such  case  to  recom- 
mend  to   the   several   Governments   concerned   what  effective 
military  or  naval  forces  the  members  of  the  League  shall  sever- 
ally contribute  to  the  armaments  of  forces  to  be  used  to  pro- 
tect the  covenants  of  the  League. 

The  members  of  the  League  agree,  further,  that  they  will 
mutually  support  one  another  in  the  financial  and  economic 
measures  which  are  taken  under  this  Article,  in  order  to 
minimize  the  loss  and  inconvenience  resulting  from  the  above 
measures,  and  that  they  will  mutually  support  one  another  in 
resisting  any  special  measures  aimed  at  one  of  their  number 
by  the  covenant-breaking  State  and  that  they  will  take  the 
necessary  steps  to  afford  passage  through  their  territory  to  the 
forces  of  any  of  the  members  of  the  League  which  are  co- 
operating to  protect  the  covenants  of  the  League. 

Any  member  of  the  League  which  has  violated  any  covenant 
of  the  League  may  be  declared  to  be  no  longer  a  member  of 

445 


COMMERCIAL  POLICY 

the  League  by  a  vote  of  the  Council  concurred  in  by  the  repre- 
sentatives of  all  the  other  members  of  the  League  represented 
thereon. 

Article  XVII 

In  the  event  of  a  dispute  between  a  member  of  the  League 
and  a  State  which  is  not  a  member  of  the  League,  or  between 
States  not  members  of  the  Leagne,  the  State  or  States  not 
members  of  the  League  shall  be  invited  to  accept  the  obliga- 
tions of  membership  in  the  League  for  the  purposes  of  such 
dispute,  upon  such  conditions  as  the  Council  may  deem  just. 
If  such  invitation  is  accepted,  the  provisions  of  Articles  XII 
to  XVI  inclusive  shall  be  applied  with  such  modifications  as 
may  be  deemed  necessary  by  the  Council. 

Upon  such  invitation  being  given,  the  Council  shall  immedi- 
ately institute  an  inquiry  into  the  circumstances  of  the  dispute 
and  recommend  such  action  as  may  seem  best  and  most 
effectual  in  the  circumstances. 

If  a  State  so  invited  shall  refuse  to  accept  the  obligations 
of  membership  in  the  League  for  the  purposes  of  such  dis- 
pute, and  shall  resort  to  war  against  a  member  of  the  League, 
the  provisions  of  Article  XVI  shall  be  applicable  as  against 
the  State  taking  such  action. 

If  both  parties  to  the  dispute,  when  so  invited,  refuse  to 
accept  the  obligations  of  membership  in  the  League  for  the 
purposes  of  such  dispute,  the  Council  may  take  such  measures 
and  make  such  recommendations  as  will  prevent  hostilities  and 
will  result  in  the  settlement  of  the  dispute. 

Article  XVIII 

Every  convention  or  international  engagement  entered  into 
henceforward  by  any  member  of  the  League  shall  be  forth- 
with registered  with  the  Secretariat,  and  shall,  as  soon  as 
possible,  be  published  by  it.  No  such  treaty  or  international 
engagement  shall  be  binding  until  so  registered. 


Article  XIX 

The  Assembly  may,  from  time  to  time,  advise  the  recon- 
sideration by  members  of  the  League  of  treaties  which  have 

446 


COVENANT  OF  THE  LEAGUE  OF  NATIONS 

become  inapplicable,  and  the  consideration  of  international 
conditions  of  which  continuance  might  endanger  the  peace  of 
the  world. 

Article  XX 

The  members  of  the  League  severally  agree  that  this  cove- 
nant is  accepted  as  abrogating  all  obligations  or  understand- 
ings inter  se  which  are  inconsistent  with  the  terms  thereof, 
and  solemnly  undertake  that  they  will  not  hereafter  enter  into 
any  engagements  inconsistent  with  the  terms  thereof. 

In  case  a  member  of  the  League  shall,  before  becoming  a 
member  of  the  League,  have  undertaken  any  obligations  in- 
consistent with  the  terms  of  this  covenant,  it  shall  be  the  duty 
of  such  member  to  take  immediate  steps  to  procure  its  release 
from  such  obligations. 

Article  XXI 

Nothing  in  this  covenant  shall  be  deemed  to  affect  the  valid- 
ity of  international  engagements  such  as  treaties  of  arbitra- 
tion or  regional  understandings  like  the  Monroe  Doctrine  for 
securing  the  maintenance  of  peace. 

Article  XXII 

To  those  colonies  and  territories  which  as  a  consequence  of 
the  late  war  have  ceased  to  be  under  the  sovereignty  of  the 
States  which  formerly  governed  them,  and  which  are  inhabited 
by  peoples  not  yet  able  to  stand  by  themselves  under  the 
strenuous  conditions  of  the  modern  world,  there  should  be 
applied  the  principle  that  the  wellbeing  and  development  of 
such  peoples  form  a  sacred  trust  of  civilization,  and  that 
securities  for  the  performance  of  this  trust  should  be  embodied 

ill  this  covenant. 

The  best  method  of  giving  practicable  effect  to  this  prin- 
ciple is  that  the  tutelage  of  such  peoples  be  entrusted  to 
advanced  nations  who,  by  reasons  of  their  resources,  their  ex- 
perience, or  their  geographical  position,  can  best  undertake 
this  responsibility,  and  who  are  willing  to  accept  it,  and  that 
this  tutelage  should  be  exercised  by  them  as  mandatories  on 
behalf  of  the  League. 

The  character  of  the  mandate  must  differ  according  to  the 

447 


COMMERCIAL  POLICY 

stage  of  development  oi  me  people,  the  geographical  situa- 
tion ot  the  territory,  its  economic  condition,  and  other  similar 
circimstances  Certain  communities  formerly  belonging  to 
the  Turkish  Empire  have  reached  a  stage  of  development 
where  their  existence  as  independent  nations  can  be  pro- 
visionaUy  recognized  subject  to  the  rendering  of  administra- 
tive advice  and  assistance  by  a  mandatory  until  such  time  as 
they  are  able  to  stand  alone.  The  wishes  of  these  communities 
must  be  a  principal  consideration  in  the  selection  of  the 
mandatory. 

Other  peoples,  especially  those  of  Central  Africa,  are  at 
such  a  stage  that  the  mandatory  must  be  responsible  for  the 
administration  of  the  territory  under  conditions  which  will 
guarantee  freedom  of  conscience  or  religion  subject  only  to 
the  mamtenance  of  public  order  and  morals,  the  prohibition 
of  abuses  such  as  the  slave  trade,  the  arms  traffic,  and  the 

^'TJ  !  '  ^""^  ^^'^  prevention  of  the  establishment  of 
lortifications  or  military  and  naval  bases  and  of  military  train- 
ing of  the  natives  for  other  than  police  purposes  and  the 
defense  of  territory,  and  will  also  secure  equal  opportunities 
lor  the  trade  and  commerce  of  other  members  of  the  Leaoiie 

There  are  territories  such  as  Southwest  Africa  and  certain 
of  the  South  Pacific  islands,  which,  owing  to  the  sparseness 
of  their  population  or  their  smaU  size  or  their  remoteness 
from  the  centers  of  civilization  or  their  geographical  con- 
tiguity to  the  territory  of  the  mandatory  and  other  circum- 
stances can  be  best  administered  under  the  laws  of  the  manda- 
tory as  integral  portions  of  its  territory,  subject  to  the  safe- 
guards above  mentioned  in  the  interests  of  the  indigenous 
population.  In  every  case  of  mandate,  the  mandatory  shall 
render  to  the  Council  an  annual  report  in  reference  to  the 
territory  committed  to  its  charge. 

The  degree  of  authority,  control,  or  administration  to  be 
exercised  by  the  mandatory,  shall,  if  not  previously  agreed 
upon  by  the  members  of  the  League,  be  explicitly  defined  in 
each  case  by  the  Council.  ^        J' 

A  permanent  commission  shall  be  constituted  to  receive  and 
examine  the  annual  reports  of  the  mandatories  and  to  advise 
the  Council  on  all  matters  relating  to  the  observance  of  the 
mandates. 

448 


COVENANT  OF  THE  LEAGUE  OF  NATIONS 

Article  XXIII 

Subject  to  and  in  accordance  with  the  provisions  of  inter- 
national conventions  existing  or  hereafter  to  be  agreed  upon, 
the  members  of  the  League  (a)  will  endeavor  to  secure  and 
maintain  fair  and  humane  conditions  of  labor  for  men,  women, 
and  children,  both  in  their  own  countries  and  in  all  countries 
to  which  their  commercial  and  industrial  relations  extend,  and 
for  that  purpose  will  establish  and  maintain  the  necessary 
international  organizations;  (6)  undertake  to  secure  just 
treatment  of  the  native  inhabitants  of  territories  under  their 
control;  (c)  will  entrust  the  League  with  the  general  super- 
vision over  the  execution  of  agreements  with  regard  to  the 
traffic  in  women  and  children,  and  the  traffic  in  opium  and 
other  dangerous  drugs;  (d)  will  entrust  the  League  with  the 
general  supervision  of  the  trade  in  arms  and  ammunition  with 
the  countries  in  which  the  control  of  this  traffic  is  necessary 
in  the  common  interest;  (e)  will  make  provision  to  secure  and 
maintain  freedom  of  communication  and  of  transit  and  equit- 
able treatment  for  the  commerce  of  all  members  of  the  League ; 
in  this  connection  the  special  necessities  of  the  regions  de- 
vastated during  the  war  of  1914-1918  shall  be  in  mind;  (/)  will 
endeavor  to  take  steps  in  matters  of  international  concern  for 
the  prevention  and  control  of  disease. 

Article  XXIV 

There  shall  be  placed  under  the  direction  of  the  League  all 
international  bureaus  already  established  by  general  treaties 
if  the  parties  to  such  treaties  consent.  All  such  interna- 
tional bureaus  and  all  commissions  for  the  regulation  of 
matters  of  international  interest  hereafter  constituted  shall  be 
placed  under  the  direction  of  the  League. 

In  all  matters  of  international  interest  which  are  regulated 
by  general  conventions,  but  which  are  not  placed  under  the 
control  of  international  bureaus  or  commissions,  the  Secre- 
tariat of  the  League  shall,  subject  to  the  consent  of  the  Council 
and  if  desired  by  the  parties,  collect  and  distribute  all  rele- 
vant information  and  shall  render  any  other  assistance  which 
may  be  necessary  or  desirable. 

The  Council  may  include  as  part  of  the  expenses  of  the 

449 


COMMERCIAL  POLICY 


Secretariat  the  expenses  of  any  bureau  or  commission  which 
is  placed  under  the  direction  of  the  League. 

Article  XXV 

The  members  of  the  League  agree  to  encourage  and  promote 
the  establisliment  and  cooperation  of  duly  authorized  volun- 
tary national  Red  Cross  organizations  having  as  purposes  the 
improvement  of  health,  the  prevention  of  disease,  and  the 
mitigation  of  suffering  throughout  the  world. 

Article  XXVI 

Amendments  to  this  covenant  will  take  effect  when  ratified 
by  the  members  of  the  League  whose  representatives  compose 
the  Council  and  by  a  majority  of  the  members  of  the  League 
whose  representatives  compose  the  Assembly. 

No  such  amendment  shall  bind  any  member  of  the  League 
which  signifies  its  dissent  therefrom,  but  in  that  case  it  shall 
cease  to  be  a  member  of  the  League. 

Annex  to  the  Covenant 

I.  Original  members  of  the  League  of  Nations: 

Signatories  of  the  Treaty  of  Peace: 

United  States  of  America,  Belgium,  Bolivia,  Brazil,  British 
Empire,  Canada,  Australia,  South  Africa,  New  Zealand,  India, 
China,  Cuba,  Czecho-Slovakia,  Ecuador,  France,  Greece,  Guate- 
mala, Haiti,  Hedjaz,  Honduras,  Italy,  Japan,  Liberia,  Nica- 
ragua, Panama,  Peru,  Poland,  Portugal,  Rumania,  Serbia, 
Siam,  Uruguay. 

States  invited  to  accede  to  the  covenant: 

Argentine  Republic,  Chile,  Colombia,  Denmark,  Nether- 
lands, Norway,  Paraguay,  Persia,  Salvador,  Spain,  Sweden, 
Switzerland,  Venezuela. 

II.  First  Secretary-General  of  the  League  of  Nations:  Sir 
James  Eric  Drummond. 


APPENDIX  X 

ACT  CREATING  THE  FEDERAL  TRADE  COMMISSION^ 

Be  it  enacted,  etc.,  That  a  commission  is  hereby  created  and 
established,  to  be  known  as  the  Federal  Trade  Commission 
(hereinafter  referred  to  as  the  commission),  which  shall  be 
composed  of  five  commissioners,  who  shall  be  appointed  by  the 
President,  by  and  with  the  advice  and  consent  of  the  Senate. 
Not  more  than  three  of  the  commissioners  shall  be  members 
of  the  same  political  party.  The  first  commissioners  appointed 
shall  continue  in  office  for  terms  of  three,  four,  five,  six,  and 
seven  years,  respectively,  from  the  date  of  the  taking  effect  of 
this  Act,  the  term  of  each  to  be  designated  by  the  President, 
but  their  successors  shall  be  appointed  for  terms  of  seven 
years,  except  that  any  person  chosen  to  fill  a  vacancy  shall 
be  appointed  only  for  the  unexpired  term  of  the  commissioner 
whom  he  shall  succeed.  The  commission  shall  choose  a  chair- 
man from  its  own  membership.  No  commissioner  shall  en- 
gage in  any  other  business,  vocation,  or  employment.  Any 
commissioner  may  be  removed  by  the  President  for  inefficiency, 
neglect  of  duty,  or  malfeasance  in  office.  A  vacancy  in  the 
commission  shall  not  impair  the  right  of  the  remaining  com- 
missioners to  exercise  all  the  powers  of  the  commission. 

The  commission  shall  have  an  official  seal,  which  shall  be 
judicially  noticed. 

Sec.  2.  That  each  commissioner  shall  receive  a  salary  of 
$10,000  a  year,  payable  in  the  same  manner  as  the  salaries 
of  the  judges  of  the  courts  of  the  United  States.  The  com- 
mission shall  appoint  a  secretary,  who  shall  receive  a  salary 
of  $5,000  a  year,  payable  in  like  manner,  and  it  shall  have 
authority  to  employ  and  fix  the  compensation  of  such  attor- 
neys, special  experts,  examiners,  clerks,  and  other  employees 
as  it  may  from  time  to  time  find  necessary  for  the  proper  per- 


450 


1  Act  of  Congress  approved  September  26,  1914,  entitled  *'An 
Act  To  create  a  Federal  Trade  Commission,  to  define  its  powers 
and  duties,  and  for  other  purposes. ' ' 

451 


COMMERCIAL  POLICY 


formance  of  its  duties  and  as  may  be  from  time  to  time  appro- 
priated for  by  Congress. 

With  the  exception  of  the  secretary,  a  clerk  to  each  com- 
missioner, the  attorneys,  and  such  special  experts  and 
examiners  as  the  commission  may  from  time  to  time  find  neces- 
sary for  the  conduct  of  its  work,  all  employees  of  the  com- 
mission shall  be  a  part  of  the  classified  civil  service,  and  shall 
enter  the  service  under  such  rules  and  regulations  as  may  be 
prescribed  by  the  commission  and  by  the  Civil  Service  Com- 
mission. 

All  of  the  expenses  of  the  commission,  including  all  neces- 
sary expenses  for  transportation  incurred  by  the  commis- 
sioners or  by  their  employees  under  their  orders,  in  making 
any  investigation,  or  upon  official  business  in  any  other  places 
than  in  the  city  of  Washington,  shall  be  allowed  and  paid  on 
the  presentation  of  itemized  vouchers  therefor  approved  by 
the  commission. 

Until  otherwise  provided  by  law,  the  commission  may  rent 
suitable  offices  for  its  use. 

The  Auditor  for  the  State  and  Other  Departments  shall  re- 
ceive and  examine  all  accounts  of  expenditures  of  the  com- 
mission. 

Sec.  3.  That  upon  the  organization  of  the  commission  and 
election  of  its  chairman,  the  Bureau  of  Corporations  and  the 
offices  of  Commissioner  and  Deputy  Commissioner  of  Corpo- 
rations shall  cease  to  exist;  and  all  pending  investigations  and 
proceedings  of  the  Bureau  of  Corporations  shall  be  continued 
by  the  commission. 

All  clerks  and  employees  of  the  said  bureau  shall  be  trans- 
ferred to  and  become  clerks  and  employees  of  the  commission 
at  their  present  grades  and  salaries.  All  records,  papers,  and 
property  of  the  said  bureau  shall  become  records,  papers,  and 
property  of  the  commission,  and  all  unexpended  funds  and 
appropriations  for  the  use  and  maintenance  of  the  said  bureau, 
including  any  allotment  already  made  to  it  by  the  Secretary 
of  Commerce  from  the  contingent  appropriation  for  the  De- 
partment of  Commerce  for  the  fiscal  year  nineteen  hundred 
and  fifteen,  or  from  the  departmental  printing  fund  for  the 
fiscal  year  nineteen  hundred  and  fifteen,  shall  become  funds 
and  appropriations  available  to  be  expended  by  the  commis- 

452 


FEDERAL  TRADE  COMMISSION  ACT 


sion  in  the  exercise  of  the  powers,  authority,  and  duties  con- 
ferred on  it  by  this  Act. 

The  principal  office  of  the  commission  shall  be  in  the  city 
of  Washington,  but  it  may  meet  and  exercise  all  its  powers  at 
any  other  place.  The  commission  may,  by  one  or  more  of  its 
members,  or  by  such  examiners  as  it  may  designate,  prosecute 
any  inquiry  necessary  to  its  duties  in  any  part  of  the  United 
States. 

Sec.  4.  That  the  words  defined  in  this  section  shall  have  the 
following  meaning  when  found  in  this  Act,  to  wit: 

"  Commerce  "  means  commerce  among  the  several  States  or 
with  foreign  nations,  or  in  any  Territory  of  the  United  States 
or  in  the  District  of  Columbia,  or  between  any  such  Territory 
and  another,  or  between  any  such  Territory  and  any  State  or 
foreign  nation,  or  between  the  District  of  Columbia  and  any 
State  or  Territory  or  foreign  nation. 

"  Corporation  "  means  any  company  or  association  incorpo- 
rated or  unincorporated,  which  is  organized  to  carry  on  busi- 
ness for  profit  and  has  shares  of  capital  or  capital  stock,  and 
any  company  or  association,  incorporated  or  unincorporated, 
without  shares  of  capital  or  capital  stock,  except  partnerships, 
which  is  organized  to  carry  on  business  for  its  own  profit  or 
that  of  its  members. 

"  Documentary  evidence  "  means  all  documents,  papers,  and 
correspondence  in  existence  at  and  after  the  passage  of  this 
Act. 

"  Acts  to  regulate  commerce  "  means  the  Act  entitled  "  An 
Act  to  regulate  commerce,"  approved  February  fourteenth, 
eighteen  hundred  and  eighty-seven,  and  all  Acts  amendatory 
thereof  and  supplementary  thereto. 

"  Antitrust  acts  "  means  the  Act  entitled  "  An  Act  to  pro- 
tect trade  and  commerce  against  unlawful  restraints  and 
monopolies,"  approved  July  second,  eighteen  hundred  and 
ninety;  also  the  sections  seventy-three  to  seventy-seven,  in- 
clusive, of  an  Act  entitled  "  An  Act  to  reduce  taxation,  to 
provide  revenue  for  the  Government,  and  for  other  purposes," 
approved  August  twenty-seventh,  eighteen  hundred  and  ninety- 
four;  and  also  the  Act  entitled  "An  Act  to  amend  sections 
seventy-three  and  seventy-six  of  the  Act  of  August  twenty- 
seventh,  eighteen  hundred  and  ninety-four,  entitled  '  An  Act 
to  reduce  taxation,  to  provide  revenue  for  the  Government,  and 

453 


II 


COMMERCIAL  POLICY 

for  other  purposes/"  approved  February  twelfth,  nineteen 
hundred  and  thirteen. 

Sec.  5.  That  unfair  methods  of  competition  in  commerce 
are  hereby  declared  unlawful. 

The  commission  is  hereby  empowered  and  directed  to  pre- 
vent persons,  partnerships,  or  corporations,  except  banks,  and 
common  carriers  subject  to  the  Acts  to  regulate  commerce, 
from  using  unfair  methods  of  competition  in  commerce. 

Whenever  the  commission  shall  have  reason  to  believe  that 
any  such  person,  partnership,  or  corporation  has  been  or  is 
using  any  unfair  method  of  competition  in  commerce,  and  if 
it  shall  appear  to  the  commission  that  a  proceeding  by  it  in 
respect  thereof  would  be  to  the  interest  of  the  public,  it  shall 
issue  and  serve  upon  such  person,  partnership,  or  corporation 
a  complaint  stating  its  charges  in  that  respect,  and  containing 
a  notice  of  a  hearing  upon  a  day  and  at  a  place  therein  fixed 
at  least  thirty  days  after  the  service  of  said  complaint.  The 
person,  partnership,  or  corporation  so  complained  of  shall 
have  the  right  to  appear  at  the  place  and  time  so  fixed  and 
show  cause  why  an  order  should  not  be  entered  by  the  com- 
mission requiring  such  person,  partnership,  or  corporation  to 
cease  and  desist  from  the  violation  of  the  law  so  charged  in 
said  complaint.  Any  person,  partnership,  or  corporation  may 
make,  application,  and  upon  good  cause  shown  may  be  allowed 
by  the  commission,  to  intervene  and  appear  in  said  proceeding 
by  counsel  or  in  person.  The  testimony  in  any  such  pro- 
ceeding shall  be  reduced  to  writing  and  filed  in  the  office  of 
the  commission.  If  upon  such  hearing  the  commission  shall 
be  of  the  opinion  that  the  method  of  competition  in  question 
is  prohibited  by  this  Act,  it  shall  make  a  report  in  writing  in 
which  it  shall  state  its  findings  as  to  the  facts,  and  shall  issue 
and  cause  to  be  served  on  such  person,  partnership,  or  corpo- 
ration an  order  requiring  such  person,  partnership,  or  corpo- 
ration to  cease  and  desist  from  using  such  method  of  com- 
petition. Until  a  transcript  of  the  record  in  such  hearing 
shall  have  been  filed  in  a  circuit  court  of  appeals  of  the 
United  States,  as  hereinafter  provided,  the  commission  may  at 
any  time,  upon  such  notice  and  in  such  manner  as  it  shall 
deem  proper,  modify  or  set  aside,  in  whole  or  in  part,  any 
report  or  any  order  made  or  issued  by  it  under  this  section. 

If  such  person,  partnership,  or  corporation  fails  or  neglects 

454 


FEDERAL  TRADE  COMMISSION  ACT 

to  obey  such  order  of  the  commission  while  the  same  is  in 
effect,  the  commission  may  apply  to  the  circuit  court  of  ap- 
peals of  the  United  States,  within  any  circuit  where  the  method 
of  competition  in  question  was  used  or  where  such  person, 
partnership,  or  corporation  resides  or  carries  on  business,  for 
the  enforcement  of  its  order,  and  shall  certify  and  file  with  its 
application  a  transcript  of  the  entire  record  in  the  proceeding, 
including  all  the  testimony  taken  and  the  report  and  order  of 
the  commission.  Upon  such  filing  of  the  aj^plication  and 
transcript  the  court  shall  cause  notice  thereof  to  be  served 
upon  such  person,  partnership,  or  corporation  and  thereupon 
shall  have  jurisdiction  of  the  proceeding  and  of  the  question 
determined  therein,  and  shall  have  power  to  make  and  enter 
upon  the  pleadings,  testimony,  and  proceedings  set  forth  in 
such  transcript  a  decree  affirming,  modifying,  or  setting  aside 
the  order  of  the  commission.  The  findings  of  the  commission 
as  to  the  facts,  if  supported  by  testimony,  shall  be  conclusive. 
If  either  party  shall  apply  to  the  court  for  leave  to  adduce 
additional  evidence,  and  shall  show  to  the  satisfaction  of  the 
court  that  such  additional  evidence  is  material  and  that  there 
were  reasonable  grounds  for  the  failure  to  adduce  such  evi- 
dence in  the  proceeding  before  the  commission,  the  court  may 
order  such  additional  evidence  to  be  taken  before  the  commis- 
sion and  to  be  adduced  upon  the  hearing  in  such  manner  and 
upon  such  terms  and  conditions  as  to  the  court  may  seem 
proper.  The  commission  may  modify  its  findings  as  to  the 
facts,  or  make  new  findings,  by  reason  of  the  additional  evi- 
dence so  taken,  and  it  shall  file  such  modified  or  new  findings, 
which,  if  supported  by  testimony,  shall  be  conclusive,  and  its 
recommendation,  if  any,  for  the  modification  or  setting  aside 
of  its  original  order,  with  the  return  of  such  additional  evi- 
dence. The  judgment  and  decree  of  the  court  shall  be  final, 
except  that  the  same  shall  be  subject  to  review  by  the  Supreme 
Court  upon  certiorari  as  provided  in  section  two  hundred  and 
forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  to  cease 
and  desist  from  using  such  method  of  competition  may  obtain 
a  review  of  such  order  in  said  circuit  court  of  appeals  by 
filing  in  the  court  a  written  petition  praying  that  the  order 
of  the  commission  be  set  aside.  A  copy  of  such  petition  shall 
be  forthwith  served  upon  the  commission,  and  thereupon  the 

455 


f' 


COMMERCIAL  POLICY 

commission  forthwith  shall  certify  and  file  in  the  court  a 
transcript  of  the  record  as  hereinbefore  provided.  Upon  the 
filing  of  the  transcript  the  court  shall  have  the  same  jurisdic- 
tion to  affirm,  set  aside,  or  modify  the  order  of  the  commis- 
sion as  in  the  case  of  an  application  by  the  commission  for 
the  enforcement  of  its  order,  and  the  findings  of  the  commis- 
sion as  to  the  facts,  if  supported  by  testimony,  shall  in  like 
manner  be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United 
States  to  enforce,  set  aside,  or  modify  orders  of  the  commis- 
sion shall  be  exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be 
given  precedence  over  other  cases  pending  therein',  and  shall 
be  in  every  way  expedited.  No  order  of  the  commission  or 
judgment  of  the  court  to  enforce  the  same  shall  in  any  wise 
relieve  or  absolve  any  person,  partnership,  or  corporation  from 
any  liability  under  the  antitrust  acts. 

Complaints,  orders,  and  other  processes  of  the  commission 
under  this  section  may  be  served  by  anyone  duly  authorized 
by  the  commission,  either  (a)  by  delivering  a  copy  thereof  to 
the  person  to  be  served,  or  to  a  member  of  the  partnership 
to  be  served,  or  to  the  president,  secretary,  or  other  executive 
officer  or  a  director  of  the  corporation  to  be  served;  or  (b)  by 
leaving  a  copy  thereof  at  the  principal  office  or  place  of  busi- 
ness of  such  person,  partnership,  or  corporation;  or  (c)  by 
registering  and  mailing  a  copy  thereof  addressed  to  such  per- 
son, partnership,  or  corporation  at  his  or  its  principal  office 
or  place  of  business.  The  verified  return  by  the  person  so 
serving  said  complaint,  order,  or  other  process  setting  forth 
the  manner  of  said  service  shall  be  proof  of  the  same,  and  the 
return  post-office  receipt  for  said  complaint,  order,  or  other 
process  registered  and  mailed  as  aforesaid  shall  be  proof  of 
the  service  of  the  same. 

Sec.  6.  That  the  commission  shall  also  have  power  — 

(a)  To  gather  and  compile  information  concerning,  and  to 
investigate  from  time  to  time  the  organization,  business,  con- 
duct, practices,  and  management  of  any  corporation  engaged 
in  commerce,  excepting  banks  and  common  carriers  subject  to 
the  Act  to  regulate  commerce,  and  its  relation  to  other  cor- 
porations and  to  individuals,  associations,  and  partnerships. 

(b)  To  require,  by  general  or  special  orders,  corporations 

456 


FEDERAL  TRADE  COMMISSION  ACT 

engaged  in  commerce,  excepting  banks,  and  common  carriers 
subject  to  the  Act  to  regulate  commerce,  or  any  class  of  them, 
or  any  of  them,  respectively,  to  file  with  the  conmaission  in 
such  form  as  the  commission  may  prescribe  annual  or  special, 
or  both  annual  and  special,  reports  or  answers  in  writing  to 
specific  questions,  furnishing  to  the  commission  such  informa- 
tion as  it  may  require  as  to  the  organization,  business,  conduct, 
practices,  management,  and  relation  to  other  corporations, 
partnerships,  and  individuals  of  the  respective  corporations 
filing  such  reports  or  answers  in  writing.  Such  reports  and 
answers  shall  be  made  under  oath,  or  otherwise,  as  the  com- 
mission may  prescribe,  and  shall  be  filed  with  the  commission 
within  such  reasonable  period  as  the  commission  may  prescribe, 
unless  additional  time  be  granted  in  any  case  by  the  com- 
mission. 

(c)  Whenever  a  final  decree  has  been  entered  against  any 
defendant  corporation  in  any  suit  brought  by  the  United 
States  to  prevent  and  restrain  any  violation  of  the  antitrust 
Acts,  to  make  investigation,  upon  its  own  initiative,  of  the 
manner  in  which  the  decree  has  been  or  is  being  carried  out, 
and  upon  the  application  of  the  Attorney  General  it  shall  be 
its  duty  to  make  such  investigation.  It  shall  transmit  to  the 
Attorney  General  a  report  embodying  its  findings  and  recom- 
mendations as  a  result  of  any  such  investigation,  and  the 
report  shall  be  made  public  in  the  discretion  of  the  commission. 

(d)  Upon  the  direction  of  the  President  or  either  House  of 
Congress  to  investigate  and  report  the  facts  relating  to  any 
alleged  violations  of  the  antitrust  Acts  by  any  corporation. 

(e)  Upon  the  application  of  the  Attorney  General  to  in- 
vestigate and  make  recommendations  for  the  readjustment  of 
the  business  of  any  corporation  alleged  to  be  violating  the 
antitrust  Acts  in  order  that  the  corporation  may  thereafter 
maintain  its  organization,  management,  and  conduct  of  busi- 
ness in  accordance  with  law. 

(f )  To  make  public  from  time  to  time  such  portions  of  the 
information  obtained  by  it  hereunder,  except  trade  secrets  and 
names  of  customers,  as  it  shall  deem  expedient  in  the  public 
interest;  and  to  make  annual  and  special  reports  to  the  Con- 
gress and  to  submit  therewith  recommendations  for  additional 
legislation;  and  to  provide  for  the  publication  of  its  reports 

457 


COMMERCIAL  POLICY 


and  decisions  in  such  form  and  manner  as  may  be  best  adapted 
for  public  infoi-mation  and  use. 

(g)  From  time  to  time  to  classify  corporations  and  to  make 
rules  and  regulations  for  the  purpose  of  carrying  out  the  pro- 
visions of  this  Act. 

(h)  To  investigate,  from  time  to  time,  trade  conditions  in 
and  with  foreign  countries  where  associations,  combinations, 
or  practices  of  manufacturers,  merchants,  or  traders,  or  other 
conditions,  may  affect  the  foreign  trade  of  the  United  States, 
and  to  report  to  Congress  thereon,  with  such  recommenda- 
tions as  it  deems  advisable. 

Sec.  7.  That  in  any  suit  in  equity  brought  by  or  under  the 
direction  of  the  Attorney  General  as  provided  in  the  antitrust 
Acts,  the  court  may,  upon  the  conclusion  of  the  testimony 
therein,  if  it  shall  be  then  of  opinion  that  the  complainant  is 
entitled  to  relief,  refer  said  suit  to  the  commission,  as  a  master 
in  chancery,  to  ascertain  and  report  an  appropriate  form  of 
decree  therein.  The  commission  shall  proceed  upon  such 
notice  to  the  parties  and  under  such  rules  of  procedure  as  the 
court  may  prescribe,  and  upon  the  coming  in  of  such  report 
such  exceptions  may  be  filed  and  such  proceedings  had  in 
relation  thereto  as  upon  the  report  of  a  master  in  other  equity 
causes,  but  the  court  may  adopt  or  reject  such  report,  in  whole 
or  in  part,  and  enter  such  decree  as  the  nature  of  the  case 
jnay  in  its  judgment  require. 

Sec.  8.  That  the  several  departments  and  bureaus  of  the 
Government  when  directed  by  the  President  shall  furnish  the 
commission,  upon  its  request,  all  records,  papers,  and  informa- 
tion in  their  possession  relating  to  any  corporation  subject  to 
any  of  the  provisions  of  this  Act,  and  shall  detail  from  time 
to  time  such  officials  and  employees  to  the  commission  as  he 
may  direct. 

Sec.  9.  That  for  the  purposes  of  this  Act  the  commission, 
or  its  duly  authorized  agent  or  agents,  shall  at  all  reasonable 
times  have  access  to,  for  the  purpose  of  examination,  and  the 
right  to  copy  any  documentary  evidence  of  any  corporation 
being  investigated  or  proceeded  against;  and  the  commission 
shall  have  power  to  require  by  subpoena  the  attendance  and 
testimony  of  witnesses  and  the  production  of  all  such  docu- 
mentary evidence  relating  to  any  matter  under  investigation. 
Any  member  of  the  commission  may  sign  subpoenas,  and  mem- 

458 


FEDERAL  TRADE  COMMISSION  ACT 


bers  and  examiners  of  the  commission  may  administer  oaths 
and  affirmations,' examine  witnesses,  and  receive  evidence. 

Such  attendance  of  witnesses,  and  the  production  of  such 
documentary  evidence,  may  be  required  from  any  place  in  the 
United  States,  at  any  designated  place  of  hearing.  And  in 
case  of  disobedience  to  a  subpoena  the  commission  may  invoke 
the  aid  of  any  court  of  the  United  States  in  requiring  the 
attendance  and  testimony  of  witnesses  and  the  production  of 
documentary  evidence. 

Any  of  the  district  courts  of  the  United  States  within  the 
jurisdiction  of  which  such  inquiry  is  carried  on  may,  in  case  of 
contumacy  or  refusal  to  obey  a  subpoena  issued  to  any  cor- 
poration or  other  person,  issue  an  order  requiring  such  cor- 
poration or  other  person  to  appear  before  the  commission,  or 
to  produce  documentary  evidence  if  so  ordered,  or  to  give 
evidence  touching  the  matter  in  question;  and  any  failure  to 
obey  such  order  of  the  court  may  be  punished  by  such  court 
as  a  contempt  thereof. 

Upon  the  application  of  the  Attorney  General  of  the  United 
States,  at  the  request  of  the  commission,  the  district  courts  of 
the  United  States  shall  have  jurisdiction  to  issue  writs  of 
mandamus  commanding  any  person  or  corporation  to  comply 
with  the  provisions  of  this  Act  or  any  order  of  the  commis- 
sion made  in  pursuance  thereof. 

The  commission  may  order  testimony  to  be  taken  by  depo- 
sition in  any  proceeding  or  investigation  pending  under  this 
Act  at  any  stage  of  such  proceeding  or  investigation.  Such 
depositions  may  be  taken  before  any  person  designated  by  the 
commission  and  having  power  to  administer  oaths.  Such 
testimony  shall  be  reduced  to  writing  by  the  person  taking  the 
deposition,  or  under  his  direction,  and  shall  then  be  subscribed 
by  the  deponent.  Any  person  may  be  compelled  to  appear 
and  depose  and  to  produce  documentary  evidence  in  the  same 
manner  as  witnesses  may  be  compelled  to  appear  and  testify 
and  produce  documentary  evidence  before  the  commission  as 
hereinbefore  provided. 

Witnesses  summoned  before  the  commission  shall  be  paid 
the  same  fees  and^  mileage  that  are  paid  witnesses  in  the  courts 
of  the  United  States,  and  witnesses  whose  depositions  are 
taken  and  the  persons  taking  the  same  shall  severally  be  en- 

459 


COMMERCIAL  POLICY 

titled  to  the  same  fees  as  are  paid  for  like  services  in  the 
courts  of  the  United  States. 

No  person  shall  be  excused  from  attending  and  testifying  or 
from  producing  documentary  evidence  before  the  commission 
or  in  obedience  to  the  subpoena  of  the  commission  on  the 
ground  or  for  the  reason  that  the  testimony  or  evidence,  docu- 
mentary or  otherwise,  required  of  him  may  tend  to  criminate 
him  or  subject  him  to  a  penalty  or  forfeiture.  But  no  natural 
person  shall  be  prosecuted  or  subjected  to  any  penalty  or  for- 
feiture for  or  on  account  of  any  transaction,  matter,  or  thing 
concerning  which  he  may  testify,  or  produce  evidence,  docu- 
mentary or  otherwise,  before  the  commission  in  obedience  to  a 
subpoena  issued  by  it:  Provided,  That  no  natural  person  so 
testifying  shall  be  exempt  from  prosecution  and  punishment 
for  perjury  committed  in  so  testifying. 

Sec.  10.  That  any  person  who  shall  neglect  or  refuse  to 
attend  and  testify,  or  to  answer  any  lawful  inquiry,  or  to 
produce  documentary  evidence,  if  in  his  power  to  do  so,  in 
obedience  to  the  subpoena  or  lawful  requirement  of  the  com- 
mission, shall  be  guilty  of  an  offense  and  upon  conviction 
thereof  by  a  court  of  competent  jurisdiction  shall  be  punished 
by  a  fine  of  not  less  than  $1,000  nor  more  than  $5,000,  or  by 
imprisonment  for  not  more  than  one  year,  or  by  both  such 
fine  and  imprisonment. 

Any  person  who  shall  willfully  make,  or  cause  to  be  made, 
any  false  entry  or  statement  of  fact  in  any  report  required  to 
be  made  under  this  Act,  or  who  shall  willfully  make,  or  cause 
to  be  made,  any  false  entry  in  any  account,  record,  or  memo- 
randum kept  by  any  corporation  subject  to  this  Act,  or  who 
shall  willfully  neglect  or  fail  to  make,  or  to  cause  to  be  made, 
full,  true,  and  correct  entries  in  such  accounts,  records,  or 
memoranda  of  all  facts  and  transactions  appertaining  to  the 
business  of  such  corporation,  or  who  shall  willfully  remove 
out  of  the  jurisdiction  of  the  United  States,  or  wilffully  muti- 
late, alter,  or  by  any  other  means  falsify  any  documentary 
evidence  of  such  corporation,  or  who  shall  willfully  refuse  to 
submit  to  the  commission  or  to  any  of  its  authorized  agents, 
for  the  purpose  of  inspection  and  taking  copies,  any  docu- 
mentary evidence  of  such  corporation  in  his  possession  or 
within  his  control,  shall  be  deemed  guilty  of  an  offense  against 
the  United  States,  and  shall  be  subject,  upon  conviction  in 

4G0 


FEDERAL  TRADE  COMMISSION  ACT 


any  court  of  the  United  States  of  competent  jurisdiction,  to  a 
fine  of  not  less  than  $1,000  nor  more  than  $5,000,  or  to  im- 
prisonment for  a  term  of  not  more  than  three  years,  or  to 
both  such  fine  and  imprisonment. 

If  any  corporation  required  by  this  Act  to  file  any  annual 
or  special  report  shall  fail  so  to  do  within  the  time  fixed  by 
the  commission  for  filing  the  same,  and  such  failure  shall  con- 
tinue for  thirty  days  after  notice  of  such  default,  the  corpora- 
tion shall  forfeit  to  the  United  States  the  sum  of  $100  for  each 
and  every  day  of  the  continuance  of  such  failure,  which  for- 
feiture shall  be  payable  into  the  Treasury  of  the  United  States, 
and  shall  be  recoverable  in  a  civil  suit  in  the  name  of  the 
United  States  brought  in  the  district  where  the  corporation  has 
its  principal  office  or  in  any  district  in  which  it  shall  do  busi- 
ness. It  shall  be  the  duty  of  the  various  district  attorneys, 
under  the  direction  of  the  Attorney  General  of  the  United 
States,  to  prosecute  for  the  recovery  of  forfeitures.  The  costs 
and  expenses  of  such  prosecution  shall  be  paid  out  of  the 
appropriation  for  the  expenses  of  the  courts  of  the  United 
States. 

Any  officer  or  employee  of  the  commission  who  shall  make 
public  any  information  obtained  by  the  commission  without 
its  authority,  unless  directed  by  a  court,  shall  be  deemed  guilty 
of  a  misdemeanor,  and,  upon  conviction  thereof,  shall  be 
punished  by  a  fine  not  exceeding  $5,000,  or  by  imprisonment 
not  exceeding  one  year,  or  by  fine  and  imprisonment,  in  the 
discretion  of  the  court. 

Sec.  11.  Nothing  contained  in  this  Act  shall  be  construed 
to  prevent  or  interfere  with  the  enforcement  of  the  provisions 
of  the*  antitrust  Acts  or  the  Acts  to  regulate  commerce,  nor 
shall  anything  contained  in  the  Act  be  construed  to  alter, 
modify,  or  repeal  the  said  antitrust  Acts  or  the  Acts  to  regu- 
late commerce  or  any  part  or  parts  thereof. 


IJ 


461 


INDEX 


Abstract  of  the  Census  of 
Manufactures,  cited,  23. 

Acetone,  uses  in  warfare,  58; 
processes  of  manufacture, 
58-9. 

Acid  steel,  production  of  in 
England,  87. 

Ad  valorem  duties,  and  under- 
valuation, 138;  tendency  to 
abandon,  138;  undesirability 
of,  138-9. 

Africa,  partition  of,  279. 

Agriculture,  investment  of 
American  capital  in  Latin 
American  Crops,  206. 

Airplane  production,  cotton 
fabrics  used  for  wings,  70; 
effect  on  chemical  industry, 
58. 

Algeciras  Conference,  and  open 
door,  281. 

Alien  Property  Custodian,  sale 
of  enemy  patents  by,  42; 
value  of  property  taken  over 
by,  317. 

Alliances,  imperialistic  interests 
maintained  by,  314 ;  group- 
ing of  European  powers  in 
the  past,  344  et  seq. ;  in- 
herent difficulties  of,  349. 

Allied  Maritime  Council,  coun- 
tries represented  in,  255; 
functions  of,  255. 

Alsace,  taken  by  Germany  in 
1871,  11;  potash  deposits  in, 
45. 

American  Air  Service,  The,  by 
Arthur  Sweetser,  cited,  58. 

American  Manufacturers  Ex- 
port Association,  work  of  for 
export  trade,  173. 

Anglo-Saxon  Alliance,  not  the 
type  of  * '  league  of  nations  ' ' 
wanted,  348. 


Anti-dumping  legislation,  in 
Canada  and  IT.  S.,  430-3;  see 
also  Chapter  VIII,  p.  137. 

Antimony,  British  Empire 's 
lack  of,  248;  price  of,  60; 
sources  of  supply,  60;  use  in 
warfare,  60. 

Argbl  Agreements,  271. 

Ark  Wright,  water-frame  in- 
vented by,  14. 

Armaments,  motives  of  Ger- 
man and  English  in  increase 
of,  325;  provision  of  League 
of  Nation  for  reduction  of, 
339. 

Badische  Company  dyestuffs 
concerns,  36. 

Bagdad  Railway,  314,  330. 

Banca  Commerciale  Italiana, 
319. 

Banking  facilities,  in  Great 
Britain,  159-60. 

Bargaining  tariffs,  defects  in 
provisions  for,  185;  neces- 
sity for,  183. 

Bartram  vs.  Eobertson,  quoted 
o  n  most-favored  nation 
clause,  193. 

Barrett,  John,  American  in- 
vestments in  ]\rexico  esti- 
mated by,  206,  316. 

Bauxite,  deposits  in  the  Carib- 
bean preserved  for  the 
Cro\^Ti,  327-8. 

Belgium,  industrial  effect  of 
devastation  of,  80,  81. 

Bethlehem  Steel  Corporation, 
expenditures  for  improve- 
ments, 1916,  75. 

Benzol,  production  of,  56;  pro- 
ducts derived  from,  57. 

Berlin  Conference,  and  Congo 
Basin,  280. 


I  1 


463 


INDEX 


Bismarck,  quoted  in  re  Congo, 
280. 

Bleached  cotton  cloth,  exports 
of,  70. 

Bleaching  powder,  interna- 
tional competition  likely,  51, 

Blockade  of  Germany,  Ameri- 
can industry  stimulated  by, 
21;  curtailment  of  imports 
due  to,  21. 

Board  of  Trade  (British),  en- 
couraged concentration  of  in- 
dustry, 163 ;  reorganization, 
162. 

Board  of  Trade  Journal, 
British,  quoted  in  re  German 
control  of  non-ferrous  metals, 
317-9. 

Boer  War,  foreign  concessions 
a  cause  of,  329. 

Bolshevism,  a  symptom  of 
social  conditions,  9. 

Bounties,  to  assist  export  trade, 
223. 

Boycott,  economic,  justifiable 
as  a  war  measure,  319;  pro- 
vision for  under  League  of 
Nations,  348. 

Brailsford,  H.  N.,  quoted  on 
German  and  English  increase 
of  armaments,  325 ;  on  for- 
eign investments,  328. 

Brazil,  monazite  sand  deposits 
in,  46;  monopoly  of  rubber 
by,  246. 

British  Board  of  Trade  Com- 
mittee on  Textile  Trades 
after  the  War,  quoted  on 
Chinese  trade,  86. 

British  Board  of  Trade  Jour- 
nal, quoted  on  operations  of 
Inter-Allied  Food  Council, 
255-6. 

British  Blue  BooTc,  cited,  7,  97, 
307,  143,  163. 

British  Empire,  imports  of  silk, 
flax,  and  hemp,  246;  see  also 
Great  Britain;  self  sustain- 
ing in  many  raw  materials, 
245. 


Brussels  Sugar  Convention,  234, 

Buenos  Aires,  International 
Congress  at,  235. 

Bund  der  Industriellen,  160. 

Bureau  of  Foreign  and  Domin- 
ion Commerce,  work  of  for 
export  trade,  174. 

Bureau  of  Standards,  research 
work  in  glass  industry,  24. 

Business  organization,  German 
industry  advanced  by,  36, 
160;  effect  of  war  on,  99; 
danger  of  over  production  on 
present  scale,  144;  promotion 
of  export  trade  of  U.  S.  by, 
158-9;  a  factor  in  commerce 
of  Great  Britain,  159-60. 

Cacao,  Ecuadorian  crop  financed 
by  Americans,  207. 

Camphor,  Japan's  monoply  of 
the  industry,  30,  245;  syn- 
thetic production  of  in  U.  S., 
31. 

Canada,  American  investments 
in,  315;  anti-dumping  law, 
150-4,  430-3;  plans  for  ex- 
port trade  promotion,  166; 
trade  war  with  Germany,  269. 

Canning,  British  Foreign  Secre- 
tary, withdrawal  of  England 
from  Quadruple  Alliance  ini- 
tiated by,  345. 

Capital,  American,  use  of  to 
establish  factories  abroad, 
205 ;  to  develop  foreign 
natural  resources,  206;  loans 
to  foreign  governments,  207; 
practice  of  lending  to  weak 
governments,  212;  rationing 
of  for  war  purposes,  216; 
limitation  of  regulation  of, 
217. 

Capital  Issues  Committee,  ra- 
tioning of  capital  by,  215. 

Caribbean  Archipelago,  ex- 
clusive concessions  and  the 
open  door  in,  327-8. 

Carnegie  Institution,  research 
work  in  glass  industry,  24. 


464 


^i 


INDEX 


Carpet  mills,  cotton  duck  pro- 
duced by,  71. 

Cartels,  a  factor  in  German 
supremacy  in  chemical  in- 
dustry, 36;  use  of  in  market- 
ing German  goods,  160. 

Cartwright,  power  loom  in- 
vented by,  15. 

Castlereagh,  Lord,  quoted  on 
Alliances,  345. 

Central  America,  exports  of 
cotton  goods  from  U.  S.  to, 
68. 

Central  Association  of  German 
Manufacturers,  160. 

Census  of  Dyes  and  Coal  Tar 
Chemicals,  cited,  43. 

Chamber  of  Commerce  of  U.  S., 
work  of  for  export  trade,  173. 

Chamoisette  gloves;  see  Sueded 
gloves. 

Chemical  Foundation  Incor- 
porated, sale  of  enemy  prop- 
erty to,  42. 

Chemical  industries,  German 
dominance  before  the  war,  33, 
80 ;  American  industries 
stimulated  by  curtailment  of 
imports,  34;  cartels  a  factor 
in  German  supremacy,  36;  de- 
mand for  war  supplies  an  in- 
fluence on  development  of 
American  industry,  49;  loss 
of  German  export  trade,  80; 
German  blockade  a  stimulus 
to  expansion  in  other  nations, 
80-1;  see  Chapters  III  and 
IV. 

China,  exports  from  Japan  to, 
95;  foreign  concessions  in, 
331;  Japan's  demands  on, 
332,  374-7;  need  for  inter- 
national supervision,  333 ; 
open  door,  282. 

Chlorine,  war  demand  for,  49, 
50;  peace  time  uses  of,  50; 
domestic  production  and  im- 
ports in  1914,  50;  expansion 
of  industry,  50,  51;  after  war 
competition  in,  51. 


Chromium,  British  Empire  *i 
lack  of,  248;  a  necessity  in 
the  steel  industry,  243. 

Clawson,  Frederick  A.,  quoted 
in  re  production  of  sulphuric 
acid,  52. 

Closed  Door,  in  old  Colonial  sys- 
tem, 278. 

Coal,  France  an  importer  of, 
88;  German  mines,  88;  Brit- 
ish supply,  246;  U.  S.  leads 
the  world  in  output  of,  248; 
world  production  in  1913; 
committees  to  deal  with  inter- 
Allied  needs  of,  257. 

Cocoa,  export  tax  on,  286. 

Coke,  committees  to  deal  with 
inter- Allied  needs  of,  257. 

Collet,  Sir  Wilfred,  quoted  in  ra 
exclusive  cohcessions,  328. 

Colombia,  commercial  treaty  be- 
tween IT.  S.  and,  193. 

Colonial  expansion,  revival  of 
interest  in,  in  19th  century, 
279;  German  aims  in  estab- 
lishing industrial  colonies, 
319-20. 

Colonial  tariffs,  the  "  closed 
door  "  in  the  old  system, 
278;  review  of  European 
colonial  systems,  283-290;  the 
IT.  S.  in  the  Philippines, 
291-3. 

Commercial  policy,  effect  of 
war  time  control  of  food  and 
raw  material  on,  257. 

Commercial  treaties,  defects  as 
bargaining  policy,  188-9 ; 
method  of  ratification  modi- 
fied, 188. 

Commission  Internationale  de 
Bavitaillement,  establishment 
of,  254. 

Committee  on  Commercial  and 
Industrial  Policy  after  the 
War  (British),  report  of, 
163;  quoted  on  essential  in- 
dustries, 247. 
Competitive  conditions,  altered 
by  war,  96,  104;  as  a  basis 


465 


\ 


INDEX 


INDEX 


for  tariff,  103-4;  unfair  prac- 
tices in  foreign  trade,  210, 
324-5. 
Concealed  discriminations,  ex- 
istence in  laws  and  regula- 
tions, 181-2,  306;  German 
against  American  pork,  181 ; 
American  law  to  prevent, 
181 ;  unintentional  discrim- 
inations, 182;  a  subject  for 
international  investigation, 
182;  remedy  for,  182,  306; 
principle  of  equality  of  treat- 
ment nullified  by,  305. 

Concentration  in  industry,  Brit- 
ish tendencies  toward,  82, 
162;  in  Germany,  165. 

Concessions,  and  open  door,  283, 
326;  Mexico  the  land  of, 
206;  in  undeveloped  regions, 
323,  336;  political  signifi- 
cance of,  325;  in  the  Congo, 
326-7;  the  British  in  the 
Caribbean,  327;  Kussia  in 
Persia,  330;  the  ** scramble" 
in  China,  330-3, 

Congo  Free  State,  and  Berlin 
Conference,  280;  concessions 
in,  283,  326-7;  discrimina- 
tions in  tariff  prohibited, 
288. 

Consular  Service,  work  of  for 
export  trade,  176. 

Contemporary  Politics  in  the 
Far  East,  by  Stanley  K. 
Hornbeck,  cited,  288,  330, 
332. 

Conventional  tariff,  of  Ger- 
many, 190. 

Conversion  Costs  of  Cotton, 
and  tariff  rates,  422-9. 

Copper,  British  Empire's  lack 
of,  248. 

*  *  Cordite, ' '  manufacture  of 
acetone  for,  58-9. 

Cost  of  production,  use  of 
term,  118;  and  U.  S.  Tariff 
Commission,  122;  and  pro- 
posed international  commis- 
sion, 122;   of  sugar,  123;   of 


cotton  yarn,  126  et  seq.;  and 
prices,  128. 

Cotton  Conversion  Costs  and 
Tariff  Bates,  422-9. 

Cotton,  raw,  U.  S.  leading  pro- 
ducer, 69,  248;  exports  to 
leading  foreign  countries,  69; 
shortage  in  Great  Britain  in 
1918,  85;  Egyptian  crop 
commandeered,  85 ;  Japan 's 
source  of  supply,  246 ;  Egypt, 
India  and  other  parts  of 
British  Empire  producers  of, 
246 ;  inter-Allied  committee 
to  deal  with  the  needs  for, 
256. 

Cotton  gin,  invented  by  "Whit- 
ney, 15. 

Cotton  goods,  increase  in  ex- 
ports from  U.  S.,  66-70;  de- 
mand for  war  supplies,  69; 
export  trade  of  Great  Britain, 
85-6;  industry  in  Japan,  91. 

Cotton  yarn,  cost  of  producing, 
126  et  seq. 

Counterfeiting,  in  international 
trade,  223. 

Countervailing  duties,  provis- 
ions of  Act  of  1913,  140;  sug- 
gested legislation  concerning, 
141. 

Cowdray,  Lord,  concessions  in 
Mexico  granted  to,  212. 

Cremer,  J.  T.,  quoted  in  re 
colonial  tariffs,  284. 

Cuba,  cost  of  sugar  in,  124  et 
seq. 

Customs  unions,  when  justifi- 
able, 307. 

Day,  Cline,  cited  in  re  Dutch 
Colonial  policy,  284. 

Democratic  Party,  tariff  policy 
1913,  104. 

Dernburg,  German  Colonial  Sec- 
retary, quoted  in  re  colonial 
tariffs,  287. 

Devastation  of  France  and  Bel- 
gium, industrial  effect  of, 
80-1. 


466 


Dickinson,  G.  Lowes,  quoted  in 
re  causes  of  war,  325-6. 

Dingley  Tariff  of  1897,  263. 

Discriminations  in  trade,  bar- 
gaining tariffs  a  means  of 
preventing,  180  et  seq.;  con- 
cealed and  open,  180,  182; 
subject  for  international 
negotiation,  268 ;  see  Chapter 
X;  see  also  Concealed  dis- 
crimiriations. 

Diversification  of  industry, 
effect  of  the  war  in,  20 ;  an 
argument  for  protection, 
116;  Alexander  Hamilton 
quoted  on,  116-7. 

Dominican  Republic,  complica- 
tion with  U.  S.  arising  from 
unregulated  lending  of  pri- 
vate capital  to,  213;  protec- 
tion of  financial  interests  of 
U.  S.  citizens  in,  328. 

Drawbacks,  purpose  of,  223. 

Dumping,      confusion      as      to 
term,    137,    138;     types    of, 
141;    definition,    142;    effect 
on    importing   country,    143; 
effect   on   exporting   country, 
143-4;       as      a      permanent 
policy,  144-147;  to  destroy  a 
competitor,  147-8;  eventually 
raises  prices,   149;   post  war 
possibiHties    of,    150;    Tariff 
Commission  may  investigate, 
154-155;     see    also    Chapter 
VIIL 
Dumping  legislation,  two  classes 
of,    150;    Canadian    law    as 
basis  for,   150-151,   154;   en- 
actment    of     by     Congress, 
Sept.  8,  1916,  152-154;   sug- 
gestions   concerning,     154-5 ; 
Australian  law,  151. 
Du    Pont    de   Nemours,   E.   I., 
synthetic    camphor    produced 
by,  31 ;  smokeless  powder,  55. 
Dutch    East    India    Company, 
and  Colonial  monopoly,  283; 
practice  of  sabotage,  144. 
Dye    industry,    German    domi 


nance  before  the  war,  84; 
world  production  in  1914,  35 ; 
American  industry  in  1914, 
35;  stoppage  of  imports  by 
German  blockade,  37;  effect 
of  shortage  on  textile  mills, 
37 ;  reserve  supplies  in  Orien- 
tal and  European  countries, 
37;  use  of  natural  dyes,  37; 
German  patents,  38-41;  de- 
velopment of  American  in- 
dustry, 38-40 ;  tariff  on  inter- 
mediates and  finished  pro- 
ducts, 39;  unfair  competition 
restricted,  39;  effect  of  en- 
trance of  TJ.  S.  into  war,  41 ; 
exports  in  1917,  43;  relation 
to  high  explosive  industry, 
57-8;  development  of  in- 
dustry in  Japan,  83;  in 
Great  Britain,  107-111. 

Economic  Conference  of  the 
Allies,  recommendations  of, 
368-73. 

Edwards*  Col.,  Chief  of  Bureau 
of  Insular  Affairs,  quoted  in 
re  Philippine  tariffs,  292. 

Egypt,  British  intervention  in 
financial  interests  of  citizens, 
328;  chief  source  of  Great 
Britain's  supply  of  raw  cot- 
ton, 85. 

Emergency  Fleet  Corporation, 
power  delegated  to,  76. 

Enemy  property,  sale  of,  by 
Alien  Property  Custodian,  42. 

Equality  of  treatment,  adoption 
of  unconditional  form  of 
most-favored-nation  clause  a 
means  to,  301;  extension  of 
the  principle  to  dependent 
colonies  and  economically 
backward  countries,  301-2; 
made  ineffective  by  concealed 
discriminations,  305;  justifi- 
able exceptions  to,  307. 

Espionage,  by  foreign  banks, 
224. 

Essential   industries,   argument 

467 


INDEX 


for  protection,  106 ;  in  Great 
Britain,  107;  in  United 
States,  111. 

Export  associations,  objections 
to,  170 ;  desirability  and  limi- 
tations of,  171. 

Export  Associations  Act,  pro- 
visions relating  to  unfair 
competition,  215;  text  of, 
434-7. 

Export  bounties,  a  form  of 
dumping,  140. 

Export  tax,  on  palm  kernels, 
jute,  cocoa,  286. 

Export  trade,  of  Japan,  93,  94; 
advantage  to  the  U.  S.,  157; 
cooperation    for    in    foreign 
countries,    159;     British    ad- 
vantages in,  159-160 ;  German 
assistance  to,  160-161;   Brit- 
ish plans  to  assist,  162-4 ;  na- 
ture of  French,  164;   growth 
of   Japanese,   165;    Canadian 
assistance  to,  166;  growth  of 
American,   166-168;    coopera- 
tion  to   retain,    169-170;    ex- 
port associations  and,  170-1; 
means    of    promoting,    171; 
government      assistance      to 
American,   174-6;    free  ports 
to  assist,  177;  desirability  of 
assistance  to,  178-9;  of  food 
and   raw   materials,   203 ;    of 
manufactured    articles,    204 ; 
provisions    of    Export    Asso- 
ciations Act  for  regulation  of 
unfair    practices,    215;     alli- 
ance between   foreign  invest- 
ment  and,   321    et   seq.;   see 
also  Foreign  trade. 

Factory  system,  beginning  of, 
15. 

Federal  Commissions,  adjudica- 
tion of  disputes  by,  in  IT.  S. 
precedents  for  international 
commissions,  356-7. 

Federal  Reserve  Board,  pro- 
vision of  for  rationing  of 
capital,  215. 


Federal      Trade      Commission, 
power     to     regulate     unfair 
practices  in,  215,  228-9;  text 
of  act  creating,  451. 
Five    Loan    Power    to    China, 
capital  invested  in  for  poli- 
tical reasons,  329. 
Flax,   British    Empire    imports 
85%  of  its  supply,  246;  estab- 
lishment   of    program    com- 
mittees   to    deal    with    inter- 
Allied  needs  of,  257. 
Food  Administration,  act  estab- 
lishing   quoted,    250;    duties 
of,  250. 
Food  products,  value  of  manu- 
factures in  U.  S.  in  1914,  20. 
Food  and  raw  materials,  U.  S. 

exports  of,  203. 
Formosa,    source    of    camphor, 

30. 
Foreign    investments,    factories 
established  abroad  with 
American    capital,    205;    em- 
ployment    of     American     to 
develop    foreign   natural    re- 
sources  or   to   finance   crops, 
206;  loan  of  American  capi- 
tal  to    foreign    governments, 
208;    need  of  regulation   of, 
208  et  seq.;   methods  of  cal- 
culating,     312;      of      Great 
Britain,  312;  of  France,  313; 
of    Germany,    313-5,    317    et 
seq.;    of   the   United   States, 
315  et  seq.;  alliance  between 
export     trade     and,     321-5; 
political  significance  of  loans, 
concessions    and    investments 
in  undeveloped  regions,  325-8 ; 
conflict  hemveen  financial  in- 
terests    and     weak     govern- 
ments,    328;      financial     in- 
terests a  factor  of  war,  329; 
need   of  international  super- 
vision,   333;    failure    of    im- 
perialism, 335;  nature  of  in- 
ternational control,  336. 
Foreign  trade,  extension  of,  63 ; 
provisions  of  Act  of  Oct.  3, 

468 


INDEX 


1913  for  encouragement  of, 
188;  national  control  of 
American  activities  abroad, 
201  et  seq.;  U.  S.  export  of 
food  and  raw  materials,  203 ; 
of  manufactured  articles, 
204 ;  factories  established 
abroad,  205. 
Foreign  Trade  Committee,  work 

of,  176. 
France,  industrial  effect  of  de- 
vastation  of,  80-1;   post-war 
position  in  world  trade,  96; 
post-war  plans  in  promoting 
exporting   trade,    164;    tariff 
system,  191;  colonial  tariffs, 
289   et  seq.;   foreign  invest- 
ments, 313. 
Free  trade,  history  of,  112 ;  ad- 
vantage   to    Great    Britain, 
113 ;  Karl  Marx  on,  113 ;  fal- 
lacies,    112-114;     arguments 
against,  114  et  seq. 
Free    zones,    report    of    Tariff 

Commission  on,  177. 
Fuel  Administration,  restric- 
tions established  by,  63; 
duties  of,  249-250;  act  estab- 
lishing quoted,  250. 
<*  Full-line  forcing,'*  provision 
against,  40. 

Gas  mantles;  see  Incandescent 
gas  mantles, 

Germany,  pre-war  dominance  in 
dye  industry,  34  et  seq.; 
monopolistic  position  in 
potash,  44;  thorium  nitrate, 
46;  industrial  effect  of  isola- 
tion of,  81;  profits  in  the 
steel  industry  during  the  war, 
87 ;  post-war  position  in  world 
trade,  96-7;  unification  in 
1871  an  impetus  to  industrial 
activity,  160;  assistance  to 
export  trade,  160;  industrial 
concentration  in  the  cartel, 
160;  syndicates  and  export 
trade,  161;  tariff  system  of, 
190 ;  her  lack  of  essential  raw 


materials,    243,    244;     trade 
war  with  Canada,  269;  colo- 
nial   tariffs,    287-8;    foreign 
investments,    313-4;     alien 
property  taken  over  by  U.  S., 
317;    control   of    non-ferrous 
metals,  317;   industrial  colo- 
nies established  by,  319;  con- 
trol   of    industries   in    Italy, 
319;  alliance  between  export 
trade     and     foreign     invest- 
ment, 321-2. 
Glass    industry,    status    of    in 
U.  S.  in  1914,  22 ;  imports  of 
special  lines  before  the  war, 
22;  development  of  chemical 
and     scientific     ware,     22-3; 
optical  glass,  24;  Jena  Glass 
Laboratory,  24;    Great  Brit- 
ain's dependence  on  Germany 
before  the  war,  24-7. 
Glass  Industry  as  Affected  hy 

the  War,  The,  cited,  23. 
Gloves;  see  Sueded  gloves. 
Government    aid    to    industry, 
promotion    of    foreign    trade 
by  Federal  Bureau  and  Con- 
sular   service,    174-6;    enact- 
ment of  legislation  permitting 
free    ports    suggested    as    a 
means  of,  177. 
Government  control  of  industry 
during  the  war,  organizations 
in   U.   S.   dealing  with,   249- 
252;    effect  of  national  con- 
trols,   252-3;     measures    for 
joint  action  among  the  Allies, 
254  seq. 
Government    orders,    extent    of 

war  demands,  63-4. 

Government     Organisation     in 

War    Time    and    After,    by 

W.  F.  Willoughby,  cited,  250. 

Granville,   Earl   of,   quoted   on 

most-favored-nation       clause, 

196-7. 

Granville,    Lord,    cited    in    re 

Congo,  280. 
Great  Britain,  concentration  of 
in  industry,  82,  162;  adjust- 


469 


I 


INDEX 


INDEX 


\i 


ment  of  industry  to  war 
needs  in,  84;  expansion  of 
the  textile  industries  in,  85; 
reliance  on  U.  S.  for  raw  cot- 
ton, 85;  markets  for  cotton 
goods,  86;  war  stimulus  to 
iron  and  steel  industry,  86-7 ; 
reasons  for  free  trade  policy, 
113;  policy  as  to  dumping, 
143;  financial  position  of, 
159;  assistance  to  exp9rt 
trade,  159-60;  Ministry  of 
Reconstruction,  162 ;  most- 
favored-nation  treaty  with 
Japan,  196;  sources  of  raw 
materials,  245;  Colonial 
tariffs  in  dependent  colonies, 
285,  286;  preferential  tariffs 
in  the  self-governing  domin- 
ions of,  302-4;  foreign  invest- 
ments, 312. 

Haiti,  complications  with  IT.  S. 
arising  from  lending  of  pri- 
vate capital,  213,  328. 

Hamilton,  Alexander,  argument 
for  protection  advanced  by, 
116. 

Bansa-Bundf  160. 

Hargreaves,  spinning-jenny  in- 
vented by,  15. 

Hay,  John,  and  open  door  in 
China,  282;  quoted  in  re 
China,  333. 

Hemp,  British  imports  of,  246; 
committee  to  deal  with  inter- 
Allied  needs  of,  257. 

Hercules  Powder  Co.,  new  pro- 
cess for  acetone  developed  by, 
59. 

Hides,  committee  to  deal  with 
the  inter-Allied  needs  for, 
257. 

Hirst,*  M.  E.,  Life  of  Friednch 
List  cited,  116. 

Hobson,    C.    K.,   quoted   in   re 

foreign  investments,  334. 
Hochst-Cassella     dye    concerns, 

36. 
Holden,  Sir  Edward,  president 


London    City    and    Midland 

Bank,  cited,  163. 
Holy  Alliance,  an  imperialistic 

''league  of  nations,"  344-5. 
Hornbeck,  Stanley  K.,  cited  in 

re    German    tariff    policy    in 

Kiao-Chan,  288. 
Hughes,  Charles  E.,  decision  in 

Shreveport  case,  231-3. 
Hurley,  Edward  N.,  quoted  in 

re    foreign    investments    and 

export  trade,  322. 

Imperialism,  failure  of,  in 
problems  of  foreign  invest- 
ments, 335;  interests  of 
special  classes  furthered  by 
autocratic  groups,  341 ;  demo- 
cratic principles  cannot  be 
applied  by  imperialistic  gov- 
ernments, 342;  Laissez  fairs 
policy  not  a'  substitute  for, 
343. 

Import  and  Production  of  Cot- 
ton Ve7ietia7is,  The,  cited,  29. 

Imports,  curtailment  of  by  Ger- 
man blockade,  21. 

Incandescent  gas  mantles,  Ger- 
man   pre-war   control   of   in- 
lustry,    46;    development    of 
industry  in  U.  S.,  46. 

India,  exports  from  Japan  to, 
95;  one  source  of  Great 
Britain  ^s  supply  of  raw  cot- 
ton, 246. 

Industrial  expansion,  revolu- 
tion in  industry  during  18th 
century,  14;  inventions  of 
machinery,  14-16;  19th  cen- 
tury development  stimulated 
by  transportation  and  com- 
munication facilities,  17 ;  col- 
onies and  "spheres  of  in- 
fluence" sought,  17;  coopera- 
tion between  industry  and 
government,  18,  19;  danger 
of  unregulated  control,  19; 
effect  of  the  war  on  estab- 
lished industries,  62  et  seq.; 
I      after  war  competition,  96. 


Industries  Preservation  Act  of 
1916  of  the  Commonwealth 
of   Australia,    provisions   of, 

151. 
Infant  industry,  argument  for 

protection,    105;    created   by 

war,  105. 
Inter-Allied  Food  Council,  255. 
Inter-AUied  Munitions  Council, 

256. 
Intermediates,   German   control 
of  dye  industry  through,  35; 
tariff  on,  39. 
International   commissions,   de- 
sirability   of,   for   regulation 
of  trade,  261-2;   their  func- 
tions   and    relation    to    the 
League   of   Nations,  356-60; 
work  of  Federal  Commissions 
of  U.  S.  precedents  for,  356. 
International    Harvester    Com- 
pany, an  exporter  of  capital 
to  Europe,  315. 
International     Tariff     Commis- 
sion,    proposed     arbiter     of 
trade     difftculties,     308;,    its 
powers  and  duties,  309-10. 
International    trade,    necessity 
and  desirability  of,  156;  ad- 
vantages of,  157-8*,   national 
control  inadequate,  222. 
International     Union     for    the 
Protection  of  Industrial  Prop- 
erty, 235.  • 
International    Union    for   Pub- 
lication  of   Customs   Tariffs, 
object  of,  309. 
Interstate    Commerce    Commis- 
sion,   power    over    commerce, 
229-231;   decision  in  Shreve- 
port case,  231-234. 
Iron  Trade  Beview,  1918,  cited, 

74. 
Iron  and  steel,  value  of  manu- 
factures in  U.  S.,  in  1914, 
20;  war  demands  a  stimulus 
to,  73;  exports  of  specified 
products,  73-4;  capacity  of 
plants  increased,  74;  recon- 
struction    needs      for,      75; 


470 


Korea  and  Manchuria  as 
sources  of  Japan's  supply, 
245 ;  Great  Britain 's  imports 
of,  247 ;  U.  S.  leads  world  in 
output  of,  248. 
Italy,  Colonial  tariffs  of,  288-9; 
German  control  of  industries 
in,  319;  financial  interests  in 
Tripoli,  328. 

Japan,    expansion   of    chemical 
industry  in,  80;   development 
of   industry   as    a   result   of 
war      conditions,     89;      war 
stimulus    to    steel    industry, 
89;      development     of     ship- 
building    industry     in,     91; 
cotton    goods    industry,    91; 
other   industries   which    have 
developed  as  a  result  of  war 
conditions,  92;  exports  from, 
1913-1917,    93-5;    growth    of 
export  trade  during  war,  165 ; 
and  open  door  in  China,  282; 
control  of  raw  silk  and  cam- 
phor   industry,    245;    sources 
of  raw  materials,   245;    con- 
cessions in  China,  331-2;  de- 
mands  on  China,   374-7;   see 
also  Chapter  VI. 
Java,  land  policy  in,  284-5. 
Jay,    John,    quoted    on    most- 
favored-nation  clause,  195. 
Jena  Glass  Laboratory,  optical 

glass  made  in,  24-7. 
Jones,    Grinnell,    cited    in    re 

nitric  acid,  55. 
Jute,  monopoly  of  India,  243; 
establishment  of  program 
committees  to  deal  with  inter- 
Allied  needs  of,  257;  export 
tax  on,  286. 


Kelp,  use  for  potash,  44-5;  for 
acetone,  59. 

' '  Key '  *  industries,  national 
welfare  dependent  upon  pres- 
ervation of,  48;  in  Great 
Britain,  97. 

Knox,      Secretary      of     State, 

471 


lit 


INDEX 


INDEX 


ill 
ill 


i 

it       i 

I  1 

1 

i\ 

quoted  on  bargaining  pro- 
vision of  Act  of  1909,  185; 
suggestion  in  re  railways  of 
Manchuria,  332. 

Korea,  a  source  of  raw  ma- 
terials for  Japan,  89,  245. 

Krupp  Company,  profits  of, 
during  war,  87. 

Labor,  wage  scales  significant 
in  determining  cost  of,  119; 
wages  in  foreign  countries 
compared  with  U.  S.,  120; 
efficiency  of  American,  120; 
effect  of  war  on  labor  force, 
99,  100;  relation  of  the  tariff 
to  labor  standards,  130-2. 

La  Follette,  Senator  R.  M.,  in 
tariff  debate  of  1913,  129; 
see  Appendix  VI. 

Laissez-faire  policy,  advocated 
by  early  economists,  16,  17; 
doctrine  a  failure  in  domestic 
and  international  life,  18;  an 
alternative  to  economic  im- 
perialism, 335;  not  a  substi- 
tute for  imperialism,  343. 

League  of  Free  Nations  Asso- 
ciations, principles  enunciated 
by,  353. 

League  of  Nations,  democracy 
in  national  governments  the 
foundation  of,  338  et  seq.; 
measures  for  national  security 
not  inconsistent  with  prin- 
ciples of,  340;  imdesirable 
sorts  of,  344  et  seq.;  argu- 
ments for  abolition  of  war, 
349-50 ;  cooperation  among 
nations  demonstrated  to  be 
practicable,  352 ;  assistance 
of  other  organizations,  353; 
sovereignty  and,  354;  sum- 
mary of  revised  covenant, 
355 ;  international  commis- 
sions —  their  functions  and 
relation  to  League,  356;  text 
of  covenant,  438. 

League  to  Enforce  Peace,  353. 

Leather,  value  of  manufactures 


of  in  tJ.  S.  in  1914,  20;  con- 
trol of  by  inter-Allied  com- 
mittee, 257. 

Leblane  process,  of  producing 
soda  ash,  51. 

Leopold,  King,  of  Belgium,  and 
Congo  concessions,  283. 

Levinstein  Company,  82,  111, 

Liquors  and  beverages,  value  of 
manufactures  in  TJ.  S.  in 
1914,  20. 

Lloyd-George,  David,  Boer  war 
opposed  by,  329. 

Lloyds,  assistance  to  British 
trade,  159. 

Lorraine,  taken  by  Germany  in 
1871,  11;  effect  of  transfer 
of  iron  deposits  to  France, 
87-8,  243. 

Lumber,  value  of  manufactures 
of  in  U.  S.  in  1914,  20. 

Machinery,  industry  stimulated 
by  inventions  of,  15. 

Mahan,  Rear-Admiral  A.  T., 
quoted  in  re  causes  of  war, 
326. 

Manchuria,  a  source  of  raw  ma- 
terials for  Japan,  90,  245; 
foreign  concessions  in  331-2. 

Manganese,  a  necessity  in  the 
steel  industry,  243. 

Manufactures,  America 's  in- 
dustrial position  in,  1914,  21; 
number  of  establishments, 
21 ;  wage  earners,  21 ;  value 
of  products,  21 ;  summary  of 
leading  industries,  21 ;  sum- 
mary of  American  industries, 
365-7. 

Marine  insurance,  in  Great 
Britain,  159. 

Marx,  Karl,  quoted  on  free 
trade,  113. 

Maximum  and  minimum  tariff 
of  France,  191. 

Meat  Inspection  Act  of  August 
30,  1890,  181. 

Merchant  Marine,  war-time 
shipbuilding     likely     to     de- 


472 


velop   in    U.    S.,   65,    75;    a 
source  of  strength  in  Great 
Britain's  trade,  159. 
Mercury,  prices,  60 ;  use  in  war- 
fare, 60 ;  producing  countries, 

60-1. 
Metal,   value   of  manufactures 

of  in  U.  S.  in  1914,  20. 
Mettemich,  reactionary  states- 
manship of,  11. 
Mexico,    American   investments 
in,    206-315;     protection    of 
foreign  investors  in,  335. 
Midvale    Steel    and    Ordnance 
Company,  amount  spent  for 
improvements  1916,  75. 
Millard's  Beview,  quoted  in  re 
Japan's  loan  to  China,  333. 
Mineral    Industry,    The,    1916, 
cited,  72,  73.  ,   „      , . 

Mitsui,  Mitsubishi  and  Suzuki 

Companies,  90. 
Mittel  Europa,  economic  plan, 
165;  the  Quadruple  Alliance 
the  basis  of,  346. 
Monazite  sand,  sources  of,  46; 
thorium  nitrate  industry  de- 
pendent upon,  46. 
Monroe  Doctrine,  protected 
South    America    from    inter- 
ference, 279;  British  support 
of    Latin-American    colonies 
at  the  time  of  enunciation  of, 

345. 

Morel,  E.  D.,  quoted  in  re  con- 
cessions in  the  Congo,  327. 

Morocco,  Algeciras  Conference, 
1906,  281;  French  interven- 
tion in  financial  interests  of 
citizens  in,  328. 

Most-favored-nation  clause, 
U.  S.  interpretation  of,  192; 
opinion  of  Federal  Courts 
and  Department  of  State, 
193  et  seq.;  European  inter- 
pretation, 196  et  seq.;  uncon- 
ditional form  advocated,  199 ; 
equality  of  treatment  main- 
tained by  unconditional  form 
of,  300-1;  should  be  binding 


on  British  self-governing 
dominions,  305. 

Most-favored-nation  treatment, 
denied  the  Central  Powers  by 
resolutions  of  Paris  Economic 
Conference,  300. 

Multiple  tariff  systems,  advan- 
tages of,  191. 

National  Association  of  Manu- 
factures,   foreign    trade    de- 
partment of,  172. 
National  commercial  policy,  un- 
democratic     tendencies      in, 
202-3 ;  need  for  regulation  of 
American  business,  209,  213; 
types  of  complications  likely 
to   arise,   210-11;    precedents 
for    regulation    and    control, 
215. 
National  control,  of  American 
commercial  activities  abroad, 
201  et  seq. 
National  Foreign  Trade  Coun- 
cil, work  of,  172. 
Nationalism,      the      permanent 
value  of,  7,  8;  perversion  of, 
a  cause  of  war,  17;  interna- 
tional organization  a  supple- 
ment   to    state    government, 
338    et    seq.;    economic    and 
military  security  of  a  nation 
not    inconsistent    with    prin- 
ciples of  League  of  Nations, 
340. 
Nettle   fibre,   a   textile    substi- 
tute, 83. 
Netherlands,    The,    colonial 
tariffs,  283-5 ;  and  open  door, 
284;    land    policy    in    Java, 
284,  285. 
Nickel,    Canada's    position    in, 

dominant,  247. 
Nitrate  of  soda,  Chile's  mon- 
opoly of,  54,  243 ;  import  and 
production  of  in  U.  S.,  54; 
uses  of,  54;  Chile's  export 
tax  on,  55. 
Nitrates  Syndicate,  formation 
of  a,  254. 

473 


INDEX 


Nitric  acid,  derived  from  fixa- 
tion of  atmosphere,  54;  Gov- 
ernment expenditures  for,  54. 

Non-ferrous  metals,  German 
control  of,  317-9. 

Oil  seeds,  Korea  and  Man- 
churia a  source  of  supply  for 
Japan,  245. 

Old  colonial  system,  closed  door 
in,  278. 

Open  door,  defined,  278;  treaty 
between  Great  Britain  and 
France  1898,  281;  Algeciras 
Conference  1906,  281;  in 
China,  282;  agreements 
evaded,  282,  283 ;  and  tariffs, 
283;  attitudes  of  leading  na- 
tions toward,  as  indicated  by 
colonial  tariffs,  283-93  ex- 
clusive concessions  and,  326-7 ; 
principle  of  should  be  applic- 
able to  dependent  parts  of 
world,  395. 

Optical  glass,  status  of  industry 
in  U.  S.  in  1914,  24;  develop- 
ment under  war  demands,  24 ; 
the  Jena  laboratory,  24; 
Great  Britain 's  dependence 
upon  Germany  prior  to  war, 
24-7. 

Organization  of  industry;  see 
Biisiness  organisation, 

Paish,  Sir  George,  estimate  of 
foreign  investments  by,  315. 

Palmer,  A.  Mitchell,  quoted  in 
re  enemy  property,  317. 

Palm  kernals,  production  of  in 
British  West  Africa,  246; 
control  of  by  Great  Britain, 
246;  pre-war  control  of  by 
Germany,  258 ;  export  tax  on, 
286. 

Pan  American  Union,  and  trade 
promotion,  177. 

Paper,  establishment  of  mills 
in  Canada,  205;  committee 
appointed  to  deal  with  inter- 
AUied  needs  of,  257. 


Paper  and  printing,  value  of 
industry  in  United  States  in 
1914,  20. 
Paris  Economic  Conference,  use 
of  raw  material  for  bargain- 
ing proposed  by,  85 ;  plans  to 
further  economic  interests  of 
European  countries,  161-2, 
260;  measures  adopted  to 
control  German  economic  ac- 
tivities, 320;  adoption  of 
resolutions  **a  legitimate  de- 
fense, ' '  346 ;  not  a  temporary 
alliance,  347;  text  of  resolu- 
tions, 368. 
Payne-Aldrich  tariff,  prohibi- 
tive duties  concealed  in 
specific  duties  under,  139. 
Persia,    Eussian    interests    in, 

330. 
Patents,  German  dyes  protected 
by,  38 ;  issuance  of  licenses  to 
manufacture  under,  in  U.  S., 
41 ;  sale  of  by  Alien  Property 
Custodian,  42;   chemical  pro- 
cesses  protected   by   in   Ger- 
many, 82. 
Pearson,  Sir  Westman,  conces- 
sions in  Mexico  granted  to, 
212. 
Penalty    duties.    President    au- 
thorized to  impose,  under  Act 
of  1890,  181 ;  a  method  of  en- 
forcing equality  of  treatment, 
183-4;  in  Act  of  1909,  184-8; 
limitations  of,  184 ;  European 
methods,      189-190 ;      supple- 
mental   provision    suggested, 
190  et  seq. 
Petroleum,  British  Empire  de- 
ficient in,  246 ;  U.  S.  leads  in 
output  of,  248;  world's  sup- 
ply threatened  by  exhaustion, 
249;  new  process  for  produc- 
ing, 249;   committee  to   deal 
with    inter-Allied    needs    of, 
257. 
Philadelphia      Commercial 
Museum,  work  of  for  export 
trade,  173. 

474 


fi^ 


INDEX 


Phenol,  synthetic,  production  in 
U.  S.,  56 ;  uses  of,  57. 

Philippine  Islands,  tariff  policy 
of  U.  S.  in,  291-3. 

Pinon,  Rene,  quoted  in  re 
Italian  interests  in  Tripoli, 
329. 

Picric  acid,  production  of 
phenol  for,  56;  relation  be- 
tween sulphur  black  dye  and, 

67. 
Pollock,   Sir   Frederick,  quoted 
in    re    sovereignty    and    the 
League  of  Nations,  354. 
Potash,  Germany's  natural  ad- 
vantage in,  44,  243;  produc- 
tion in  U.  S.,  44;  sources  of 
American    production,    44-5 ; 
substitutes  for,  44;   transfer 
of      Alsatian      deposits      to 
France,  45. 
Pranke,  E.  J.,  cited  in  re  im- 
ports of  nitrate  of  soda,  54. 

Preferences,  subject  for  inter- 
national negotiation,  267-8, 
296,  305 ;  methods  of  conceal- 
ing, 288 ;  removal  of  economic 
barriers  advocated,  296 ;  effect 
of  discriminatory  tariffs, 
297-9 ;  within  empires  and  be- 
tween nations,  300;  between 
Great  Britain  and  the  self- 
governing  dominions,  302-4. 

Price  cutting,  in  international 
trade,  224. 

Price  Fixing  as  Seen  ty  a  Price 
Fixer,  by  F.  W.  Taussig, 
cited,  63. 

Principles  of  Economics,  by 
F.  W.  Taussig,  cited,  118. 

Priorities,  to  war  industries, 
63-4. 

Programme  Committees,  estab- 
lishment of,  to  handle  inter- 
Allied  needs  of  raw  materials, 
257. 

Progressive  party,  tariff  plank, 
1912,  104. 

Protection,  infant  industry 
argument  for,  105;   military 


necessity  argument,  106;  di- 
versification of  industry 
theory,  116  et  seq.;  Alexander 
Hamilton  quoted  on,  116-7; 
effect  on  consumer,  132. 

Prussianism,  danger  from  the 
spirit  of,  8. 

Publicity,  a  check  on  unfair 
trade  practices,  320;  a 
remedy  for  tariff  discrimina- 
tions, 182,  306. 

Putnam-Weale,  B.  L.,  quoted  in 
re  China,  333. 

Pyriter,  use  of,  in  sulphuric 
acid  industry,  53 ;  production 
in  leading  countries,  53. 

Quadruple  Alliance,  an  im- 
perialistic **  league  of  na- 
tions,'* 344-5;  the  basis  of 
the  Mittel  Europa  dream, 
346. 

Eailroad  rates,  discriminating, 
in  export  trade,  225. 

Railroad  repair  shops,  value  of 
output  in  U.  S.  in  1914,  20. 

Railroads,  British  investments 
in  U.  S.  and  Argentina,  312-3. 

Raw  materials,  importance  of 
control  of,  243;  Germany's 
lack  of,  and  her  sources  of 
supply,  243-5;  Japan  poor  in, 
245;  extent  of  Great  Brit- 
ain's dependence  upon  for- 
eign countries  for,  245-248; 
position  of  United  States 
with  reference  to,  248-9. 

Reciprocity,  experiences  of  U.  S. 
in  bargaining  for  special 
favors,  269,  270,  300. 

Reconstruction,  British  minis- 
try of,  162. 

Republican  party,  tariff  plank, 
1908,  103. 

Riesser,  J.,  quoted  in  re  Ger- 
man foreign  investments,  314. 
Round  Table,  quoted  regarding 
functions  of  the  Commission 
Internationale  de  Bavitaille- 
ment,  254. 


475 


INDEX 


Eoot,  J.  W.,  quoted  in  re  con- 
cessions in  the  Congo,  327. 

Eubber,  plantations  of  East 
India  financed  by  Americans, 
207;  culture  by  British  Col- 
onial possessions,  246;  Bra- 
zil's monoply  of,  broken  by 
British,  246;  British  invest- 
ments in  plantations,  312.  ^ 

Eussia,  French  investments  in, 
313. 

Saar  Valley,  deposits  of  coal  in, 

243. 
Saratoga   Convention   of    1890, 

181. 
Schwab,  Charles  M.,  contracts 

for  munitions,  73. 
Scientific   research,   importance 

of  realized  by  U.  S.,  99. 
Secret    diplomacy,    inimical    to 
democratic  government,  342; 
agreements   in   contravention 
of,  not  binding  under  League 
of  Nations,  342. 
Sherman  Anti  Trust  Act,  cited 
149;  unfair  methods  of  com- 
petition prohibited  by,  228. 
Shipping,  shortage  of,  a  stim- 
ulus   to    American    industry, 
21;  war  time  restrictions  on, 
30 ;  foreign  bottoms  interned, 
requisitioned    and    chartered, 
76;     tonnage    controlled    by 
U.  S.  in  1918,  76;   discrimi- 
nating rates,  225. 
Shipbuilding,    war    programme 
of     construction,     63-4,     76; 
status  of  American  industry 
in    1914,    75;    tonnage    con- 
trolled by  U.  S.  in  1918,  76; 
development  in  Japan,  91.  ^ 
Shipbuilding  yards,  increase  in, 

76. 
Ship  subsidies,  223. 
Shreveport  case,  231-4. 
Shuster,  W.  Morgan,  quoted  in 

re  Bagdad  Eailway,  330. 
Silk     industry,     exports,      67; 
supremacy  of  U.  S.  in,  71; 


sources     of     raw     material, 
71-2;  war  prosperity  of,  72; 
imports  into  British  Empire, 
246. 
Singer  Sewing  Machine  Co.,  an 
exporter  of  capital  to  Europe, 
315. 
Six  Power  Loan  to  China,  with- 
drawal    of     America     from 
support  of,  208. 
Smith,  Adam,  quoted,  47. 
Smith,   Geo.   Otis,   cited   in   re 
potash  industry,  45 ;  sulphuric 
acid  industry,  54 ;  nitric  acid, 
55;  international  role  of  raw 
materials,  243. 
Smokeless    powder,    production 
by  Du  Pont  Co.,  55;  location 
of  factories,  55;  lowering  of 
price,  55. 
Soda  ash,  war  and  peace  uses 
for,  51;  Great  Britain  an  im- 
portant producer,  51 ;  the  Sol- 
vay    and    Leblane    processes, 
51-2. 
Solvay    process,    of    producing 

soda  ash,  51. 
Specific  duties,  desirability  of, 
138-9;    not    always    possible, 
139-140. 
Spheres  of  influence,  industrial 
expansion    of     19th    century 
led  to,  17. 
Spinning,    machinery    invented 

for,  15. 
South    America,    protected    by 

Monroe  Doctrine,  279. 
Spain,  colonial  tariffs,  287-8. 
Specialization    in    tariffs,    Ger- 
man cattle  schedule,  182. 
Standard  Oil  Company,  interests 

in  Mexico,  212. 
Stanley,  Sir  Albert,  President 
Board  of  trade  in  Great 
Britain,  85. 
Steel  Industry,  pre-war  status 
of  U.  S.,  72;  increase  in  ex- 
ports, 1913-1918,  73-4;  capac- 
ity of  plants,  74 ;  reconstruc- 
tion needs  for  steel,  75;  ex- 


476 


INDEX 


pansion  in  Great  Britain  due 
to  war  demands,  86,  87 ;  war 
stimulus  to  industry  in  ex- 
pansion of  German  industry 
during  war,  87;  transfer  of 
Lorraine  iron  deposits  to 
France,  88 ;  Japan,  89 ;  source 
of  Japan's  raw  material,  90. 

Strategy  of  Minerals,  The,  by 
George  Otis  Smith,  cited  30, 
45,  54,  75,  243,  248. 

Submarine,  interference  with 
British  shipping,  85. 

Sueded  gloves,  pre-war  imports 
from  Germany,  28;  develop- 
ment of  American  industry, 
28 ;  Japanese  competition,  28 ; 
British  production  of,  29. 

Sugar,  cost  of  producing,  123.  ^ 

Sulphur,  source  of  domestic 
production,  53;   low  cost  of, 

53. 
Sulphur  black  dye,  picric  acid 

and,  57. 
Sulphuric    acid,    uses,    52;    de- 
velopment    of     industry     m 
U.  S.  under  war  demands,  52 ; 
production   in    leading   coun- 
tries   in    1918,    52;    Spanish 
pyrites  abandoned  for  domes- 
tic   sulphur    in    IT.    S.,    53; 
Union  Sulphur  Co.  in  Louisi- 
ana, 53;  Sicilian  competition 
impossible,  54. 
Surgical  instruments,  status  of 
industry  in  U.  S.  in  1914,  26; 
stimulua^  under  war  demands, 
27;    standardization    of   pro- 
duct,  27;    increased   imports 
from  Japan,  27-8. 

T.  N.  T.,  made  from  toluol,  56. 

Taft,  W.  H.,  quoted  on  League 
of  Nations,  220. 

Tariff  Board  and  Wool  Legisla- 
tion, 384-421. 

Tariff  Commission,  TJ.  S.,  second 
annual  report  cited,  130; 
duties  of,  134-6 ;  powers  as  to 
dumping,    154-5;    report    on 


Free  Zones,  177;  text  of  act 
creating,  378-383. 
Tariff    Information    Catalogue, 

130. 
Tariff  rates  and  cotton  conver- 
sion costs,  422-9. 
Tariffs,  special  reciprocity 
methods  abandoned  in  Act  of 
1909,  184;  provisions  of  Act 
of  Oct.  3,  1913,  188;  general 
and   conventional    system   in 
Germany,  190 ;  maximum  and 
minimum   system   in   France, 
191;   advantages  of  multiple 
system,  191;  enactment  of  a 
more  flexible  tariff  advocated, 
198;  height  of  primarily  for 
domestic  determination,  263: 
as  a  means  of  revenue,  263 
in    dependent   colonies,    266 
review  of   European   colonial 
systems,  283-290. 
Taussig,  F.  W.,  quoted  on  Gov- 
ernment war  orders,  63;   on 
cost  of  production,  118. 
Textile  industries,  value  of  pro- 
duct in   1914,  20;    effect  of 
shortage  of  dyes  on,  36-7 ;  de- 
velopment of  export  trade,  63, 
66;    war-time   expansion    of, 
63,  66 ;  destruction  of  Belgian 
mills,  81 ;  effect  of  the  war  on 
German    industry,    83-4;    on 
British  industry,  85. 
Thorium   nitrate,   German   pre- 
war   monopoly    of,    46;    de- 
velopment    of     industry     in 
U.  S.,  46. 
Timber,  Japan's  source  of  sup- 
ply, 245 ;  Gi;eat  Britain 's  im- 
ports, 245 ;  committee  to  deal 
with    inter-Allied    needs    of, 
257. 
Toluol,  war  demand  for,  41 ;  re- 
covery   from    gas,    47;    pro- 
cesses  of    making,    56;    pro- 
duction of,  56 ;  uses,  56. 
Tobacco  manufactures,  value  of 

in  U.  S.  in  1914,  20. 
Trade  wars,  high  tariffs  a  cause 

477 


INDEX 


INDEX 


of,  263;  between  Prance  and 
Italy,  264;  France  and 
Switzerland,  264;  Eussia  and 
Germany,  265;  Germany  and 
Canada,  269. 

Triple  Alliance,  345. 

Triple  Entente,  345. 

Tripolitan  war,  financial  in- 
terests a  factor  of,  328-9. 

Trading-With-the-Enemy  Act, 
enactment  of,  41 ;  issuance  of 
licenses  to  manufacture  un- 
der enemy  patents,  41; 
amendment  to,  providing  for 
sale  of  enemy  property,  41-2 ; 
cited,  317. 

Treaty  of  Paris,  provision  in  re 
Spanish  merchandise  in  the 
Philippine  Islands,  291. 

Twenty-One  Demands,  The, 
Japanese  concessions  in 
China  secured  by,  332-3. 

Tungsten,  a  necessity  in  steel 
industry,  243;  pre-war  con- 
trol of  Australian  supply  by 
Germany,  258. 

Undervaluation,  in  case  of  ad 
valorem   duties,   138. 

Unfair  competition,  enactment 
of  law  to  regulate,  89;  pro- 
visions of  Export  Associa- 
tion Act  against,  215. 

Unfair  practices,  in  interna- 
tional trade,  223;  retaliation 
against,  226;  in  common  law, 
227;  under  Sherman  anti- 
trust law,  228 ;  Federal  Trade 
Commission  powers  concern- 
ing, 228;  Interstate  Com- 
merce Commission,  229-231; 
Brussels  Sugar  Convention 
on,  234;  International  Con- 
gress of  American  States  on, 
235;  International  union  for 
the  protection  of  industrial 
property  on,  235;  sugges- 
tions concerning  by  sixth  In- 
ternational Congress  of 
Chambers  of  Commerce,  236- 


237;  League  of  Nations,  288- 
240. 

Union  Sulphur  Company  of 
Louisiana,  53. 

United  States,  growth  of  export 
trade,  166-168;  foreign  in- 
vestments, 315  et  seq. 

U.  S.  Steel  Corporation,  amount 
spent  for  improvements  1916, 
75. 

U.  S.  Shipping  Board,  powers 
delegated  to,  76;  establish- 
ment of  a  Shipping  Control 
Committee  by  War  Depart- 
ment and,  252. 

U.  S.  Tariff  Commission;  see 
Tariff  Commission* 

Vandervelde,  M.,  quoted  in  re 
exclusive  concessions  in  the 
Congo,  327. 

Van  Norman,  Louis  E.,  War 
Time  Control  of  Commerce 
by,  cited,  30,  41,  63,  251. 

Vehicles,  value  of  manufactures 
in  U.  S.  in  1914,  20. 

Venetian  cloth,  import  and 
production,  29,  30. 

Wages,  theories  of,  119,  130; 
and  productivity,  131;  and 
tariff,  132. 

War  Industries  Board,  distribu- 
tion regulated  by,  63;  duties 
of,  251,  252. 

War  Time  Control  of  Commerce, 
by  Louis  E.  Van  Norman, 
cited,  30,  41,  63. 

War  time  control  of  industry, 
•  in  U.  S.,  18,  19. 

War  Trade  Board,  regulation 
of  industry  by,  63 ;  duties  of, 
249,  251. 

Waters-Pearce  Company,  inter- 
ests in  Mexico,  212. 

Watts,  steam  engine  invented 
by,  15. 

Webb  Act,  provisions,  170. 

Wells,  H.  G.,  quoted  in  re 
League  of  Nations,  350. 


478 


Wheeler,  W.  Reginald,  quoted 
in  re  Japan's  loan  to  China, 
333. 

Whitney,  cotton  gin  invented 
by,  15. 

Whitney  versus  Roberson, 
quoted  on  most -favored-nation 
clause,  194. 

Wilson,  President,  quoted  on 
League  of  Nations,  220;  re- 
moval of  economic  barriers 
advocated  by,  296;  covenant 
of  League  of  Nations  sub- 
mitted by,  355. 

Women,  in  industry,  100. 

Wood  distillation,  a  source  of 
acetone,  58. 


< 


Woolen  industry,  exports  of, 
67;  sources  of  raw  materials, 
71,  246;  use  of  "reworked 
wool,"  71;  committees  to 
deal  with  inter-Allied  needs 
of,  256;   legislation  on,  421. 

Zimmern,  A.  E.,  quoted  in  re 
internationalism,  102 ;  cited 
in  re  share  of  labor  in  con- 
trol of  industry,  341. 

Zinc,  British  control  over  Aus- 
tralian, 247;  pre-war  control 
of  Australian  by  Germany, 
258. 

Zollverein,  establishment  of, 
justifiable,  307. 


r|4 


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